Upload
phungque
View
228
Download
2
Embed Size (px)
Citation preview
2006ANNUAL REPORT
Bank SinoPac
Executive OfficesNo. 36, Nanking East Road, Sec. 3, Taipei 104, Taiwan (R.O.C.)Telephone: (886)(2) 2506-3333Fax: (886)(2) 2506-3744http://www.banksinopac.comTelex: 26334Answerback: SINOPACSwift Address: SINOTWTP
Corporate Identity of Bank SinoPac
Bank SinoPac Corporate Identity System ("CIS") is centered on the Chinese character "yuen". The design of a square and rectangles (the combination of which becomes "yuen") within a circle not only projects the image of a coin but also implies the Chinese philosophic view of the universe. The Golden Ratio of 5:8 and the red background with "yuen" in white manifest an interesting combination of themes.
Bank SinoPac CIS logo was designed by Professor Guo-Zong Chao, Former Director of Fine Arts at Taipei National University of the Arts. The logo also incorporates the following features:
1. "Yuen" stands for perpetual prosperity;2. "Yuen" has the eight individual brush strokes, the foundation of all Chinese characters;3. "Yuen" represents endless wealth like the ever-flowing water;4. The round shape projects the image of a coin;5. It is a sure-footed and balanced design structure;6. It also projects the concept of "tai-chi" with balance and harmony.
Growing Wealth Abundant Life
Taiwan
Bei Guan
Hong Kong
Kowloon
Macau
Beijing
Vietnam Los Angeles
San Jose
The Integrated Service Network ofBank SinoPac and its Aff iliates
“Financial Silk Road of the 21st Century”
San Francisco
Office Locations
Financial Highlights
Message from the Chairman and the President
Corporate Profile
Economic and Financial Review
Significant Events in 2006
Operating Report
Financial Report
Domestic Major Economic Indicators
04
07
08
10
15
19
20
26
156
c ontents
Background
Strategic Information
Human Resources
Global Overview
Domestic Outlook
Business Review
Operating Summary
Condensed Five-year Financial Statements
Auditors’ Report - unconsolidated
Auditors’ Report - consolidated
Headquarters
Banking Division
Trust Divison
International Division
Offshore Banking Unit
Taipei Branch
Sungchiang Branch
Chunglun Branch
Chungshan Branch
Lungchiang Branch
Tehui Branch
Chengnei Branch
Hsinsheng Branch
Nanmen Branch
Chengchung Branch
Chinan Road Branch
Tingchou Branch
Chunghsiao Branch
Tunnan Branch
Chungcheng Branch
Hsinwei Branch
Chunghsiao E. Road Branch
Tungmen Branch
Hsinyi Branch
Taan Branch
Jenai Branch
Hoping Branch
Tunpei Branch
Hsisung Branch
Sungshan Branch
East Taipei Branch
Yungchun Branch
Sanhsing Branch
Hsihu Branch
Neihu Branch
Tunghu Branch
Hsinhu Branch
Tienmu Branch
Shihlin Branch
Shihtung Branch
Shetzu Branch
Lanya Branch
Peitou Branch
Chiencheng Branch
Yenping Branch
Chungching North Road Branch
Hsimen Branch
Wanhua Branch
(02) 2506-3333
(02) 2506-3333
(02) 2506-3333
(02) 2383-5299
(02) 2508-2288
(02) 2508-2288
(02) 2567-9911
(02) 8161-8000
(02) 2571-7221
(02) 2509-5570
(02) 2585-4880
(02) 2388-1111
(02) 2392-6611
(02) 2391-7565
(02) 2381-7777
(02) 2396-3001
(02) 2337-8728
(02) 2778-8811
(02) 2378-0707
(02) 2367-2888
(02) 2704-9911
(02) 2771-7011
(02) 2394-3203
(02) 2705-8322
(02) 2736-7456
(02) 2704-5711
(02) 2735-4533
(02) 2712-7899
(02) 2746-9888
(02) 2761-1331
(02) 2345-1177
(02) 2769-5323
(02) 2723-2955
(02) 8797-6633
(02) 2797-1600
(02) 2633-5555
(02) 8792-6888
(02) 2872-1177
(02) 2881-1867
(02) 2872-7155
(02) 2812-9477
(02) 2833-7222
(02) 2891-2127
(02) 2555-3261
(02) 2558-0091
(02) 2598-2463
(02) 2381-8255
(02) 2302-3485
No. 36, Sec. 3, Nanking E. Rd., Chungshan District, Taipei City 104 , Taiwan (R.O.C.)
No. 36, Sec. 3, Nanking E. Rd., Chungshan District, Taipei City 104, Taiwan (R.O.C.)
3 4 F, No. 36, Sec. 3, Nanking E. Rd., Chungshan District, Taipei City 104, Taiwan (R.O.C.)
4 5F, No.17, Poai Rd., Chungcheng District, Taipei City 100, Taiwan (R.O.C.)
10F, No. 9-1, Sec. 2, Chienkuo N. Rd., Chungshan District, Taipei City 104, Taiwan (R.O.C.)
No. 9-1, Sec. 2, Chienkuo N. Rd., Chungshan District, Taipei City 104, Taiwan (R.O.C.)
No. 192, Sungchiang Rd., Chungshan District, Taipei City 104, Taiwan (R.O.C.)
No. 306, Sec. 2, Bade Rd., Chungshan District, Taipei City 104, Taiwan (R.O.C.)
No. 79, Sec. 2, Chungshan N. Rd., Chungshan District, Taipei City 104, Taiwan (R.O.C.)
No. 409, Lungchiang Rd., Chungshan District, Taipei City 104, Taiwan (R.O.C.)
No. 16-5, Tehui St., Chungshan District, Taipei City 104, Taiwan (R.O.C.)
No. 45, Sec. 1, Hankou St., Chungcheng District, Taipei City 100, Taiwan (R.O.C.)
No. 189, Sec. 2, Hsinyi Rd., Chungcheng District, Taipei City 100, Taiwan (R.O.C.)
No. 110, Sec. 1, Nanchang Rd., Chungcheng District, Taipei City 100, Taiwan (R.O.C.)
No. 17, Poai Rd., Chungcheng District, Taipei City 100, Taiwan (R.O.C.)
No. 39, Sec. 2, Chinan Rd., Chungcheng District, Taipei City 100, Taiwan (R.O.C.)
No. 217, Sanyuan St., Chungcheng District, Taipei City 100, Taiwan (R.O.C.)
No. 236, Sec. 1, Tunhua S. Rd., Taan District, Taipei City 106, Taiwan (R.O.C.)
No. 187, Sec. 2, Anho Rd., Taan District, Taipei City 106, Taiwan (R.O.C.)
No. 172, Sec. 2, Roosevelt Rd., Taan District, Taipei City 106, Taiwan (R.O.C.)
No. 46, Sec. 4, Hsinyi Rd., Taan District, Taipei City 106, Taiwan (R.O.C.)
No. 48, Sec. 4, Chunghsiao E. Rd., Taan District, Taipei City 106, Taiwan (R.O.C.)
No. 156, Sec. 2, Hsinyi Rd., Taan District, Taipei City 106, Taiwan (R.O.C.)
No. 252, Sec. 4, Hsinyi Rd., Taan District, Taipei City 106, Taiwan (R.O.C.)
No. 177, Sec. 2, Anho Rd., Taan District, Taipei City 106, Taiwan (R.O.C.)
No. 316-2, Sec. 4, Jenai Rd., Taan District, Taipei City 106, Taiwan (R.O.C.)
No. 260, Sec. 3, Hoping E. Rd., Taan District, Taipei City 106, Taiwan (R.O.C.)
No. 209, Tunhua N. Rd., Sungshan District, Taipei City 105, Taiwan (R.O.C.)
No. 12, Tunghsing Rd., Sungshan District, Taipei City 105, Taiwan (R.O.C.)
No. 680, Sec. 4, Bade Rd., Sungshan District, Taipei City 105, Taiwan (R.O.C.)
No. 380, Sec. 1, Chilung Rd., Hsinyi District, Taipei City 110, Taiwan (R.O.C.)
No. 352, Yungchi Rd., Hsinyi District, Taipei City 110, Taiwan (R.O.C.)
No. 296, Chuangching Rd., Hsinyi District, Taipei City 110, Taiwan (R.O.C.)
No. 244, Sec. 1, Neihu Rd., Neihu District, Taipei City 114, Taiwan (R.O.C.)
No. 723, Sec. 1, Neihu Rd., Neihu District, Taipei City 114, Taiwan (R.O.C.)
No. 23, Tunghu Rd., Neihu District, Taipei City 114, Taiwan (R.O.C.)
No. 8, Juikuang Rd., Neihu District, Taipei City 114, Taiwan (R.O.C.)
No. 249, Sec. 2, Chungcheng Rd., Shihlin District, Taipei City 111, Taiwan (R.O.C.)
No. 300, Sec. 4, Chengte Rd., Shihlin District, Taipei City 111, Taiwan (R.O.C.)
No. 423, Sec. 6, Chungshan N. Rd., Shihlin District, Taipei City 111, Taiwan (R.O.C.)
No. 111, Sec. 6, Yenping N. Rd., Shihlin District, Taipei City 111, Taiwan (R.O.C.)
No. 183, Tehsing E. Rd., Shihlin District, Taipei City 111, Taiwan (R.O.C.)
No. 166-6, Kuangming Rd., Peitou District, Taipei City 112, Taiwan (R.O.C.)
No. 43, Changan W. Rd., Tatung District, Taipei City 103, Taiwan (R.O.C.)
No. 286, Minsheng W. Rd., Tatung District, Taipei City 103, Taiwan (R.O.C.)
No. 139, Sec. 3, Chungching N. Rd., Tatung District, Taipei City 103, Taiwan (R.O.C.)
No. 75, Chengtu Rd., Wanhua District, Taipei City 108, Taiwan (R.O.C.)
No. 280, Kangting Rd., Wanhua District, Taipei City 108, Taiwan (R.O.C.)
office Locations
Dep. / Branch Name Address Telephone No.
Shuangyuan Branch
Hsinglung Branch
Chingmei Branch
Nankang Branch
Panhsin Branch
East Panchiao Branch
Panchiao Branch
Kuangfu Branch
Huachiang Branch
Panchiao Chunghsiao Branch
Hsichou Branch
Hsintai Branch
Hsinchuang Branch
Chungkang Branch
Ssuyuan Branch
Hsisheng Branch
Minan Branch
Sanchung Branch
East Sanchung Branch
Sanho Branch
Chengyi Branch
South Sanchung Branch
North Sanchung Branch
Chunghsin Branch
Chunghsing Branch
Tangcheng Branch
Shuangho Branch
Yungho Branch
Chungho Branch
Chisui Branch
Yuanshan Branch
Peihsin Branch
Hsintien Branch
Hsuehfu Branch
Tucheng Branch
Haishan Branch
East Luchou Branch
Luchou Branch
South Luchou Branch
Hsichih Branch
Hsichih Changshu Branch
Wuku Branch
Shulin Branch
Huilung Branch
Yingke Branch
Yingtao Branch
Taishan Branch
No. 58, Tungyuan St., Wanhua District, Taipei City 108, Taiwan (R.O.C.)
No. 222, Sec. 2, Hsinglung Rd., Wenshan District, Taipei City 116, Taiwan (R.O.C.)
No. 12, Chechien Rd., Wenshan District, Taipei City 116, Taiwan (R.O.C.)
No. 304, Sec. 6, Chunghsiao E. Rd., Nankang District, Taipei City 115, Taiwan (R.O.C.)
No. 186, Minchuan Rd., Panchiao City, Taipei County 220, Taiwan (R.O.C.)
No. 147, Sec. 2, Chungshan Rd., Panchiao City, Taipei County 220, Taiwan (R.O.C.)
No. 23, Fuchung Rd., Panchiao City, Taipei County 220, Taiwan (R.O.C.)
No. 84-2, Sec. 2, Chungshan Rd., Panchiao City, Taipei County 220, Taiwan (R.O.C.)
No. 82, Hsinhai Rd., Panchiao City, Taipei County 220, Taiwan (R.O.C.)
No. 42, Chunghsiao Rd., Panchiao City, Taipei County 220, Taiwan (R.O.C.)
No. 74, Sec. 2, Tuhsing Rd., Panchiao City, Taipei County 220, Taiwan (R.O.C.)
No. 265, Hsintai Rd., Hsinchuang City, Taipei County 242, Taiwan (R.O.C.)
No. 341, Chungcheng Rd., Hsinchuang City, Taipei County 242, Taiwan (R.O.C.)
No. 399, Chungkang Rd., Hsinchuang City, Taipei County 242, Taiwan (R.O.C.)
No. 540-1, Huacheng Rd., Hsinchuang City, Taipei County 242, Taiwan (R.O.C.)
No. 61, Houkang 1st Rd., Hsinchuang City, Taipei County 242, Taiwan (R.O.C.)
No. 47, Minan E. Rd., Hsinchuang City, Taipei County 242, Taiwan (R.O.C.)
No. 80, Sec. 2, Chunghsiao Rd., Sanchung City, Taipei County 241, Taiwan (R.O.C.)
No. 55, Chengyi N. Rd., Sanchung City, Taipei County 241, Taiwan (R.O.C.)
No. 24, Sec. 2, Chunghsin Rd., Sanchung City, Taipei County 241, Taiwan (R.O.C.)
No. 343, Chengyi N. Rd., Sanchung City, Taipei County 241, Taiwan (R.O.C.)
No. 400, Chungcheng N. Rd., Sanchung City, Taipei County 241, Taiwan (R.O.C.)
No. 83, Sec. 4, Tzuchiang Rd., Sanchung City, Taipei County 241, Taiwan (R.O.C.)
No. 527, Sec.5, Chunghsin Rd., Sanchung City, Taipei County 241, Taiwan (R.O.C.)
No. 44, Hsinhsing Rd., Sanchung City, Taipei County 241, Taiwan (R.O.C.)
1F-5, No. 14, Lane 609, Sec. 5, Chunghsin Rd., Sanchung City, Taipei County 241,
Taiwan (R.O.C.)
No. 253, Chungcheng Rd., Yungho City, Taipei County 234, Taiwan (R.O.C.)
No. 47, Sec. 2, Yungho Rd., Yungho City, Taipei County 234, Taiwan (R.O.C.)
No. 51, Chungcheng Rd., Yungho City, Taipei County 234, Taiwan (R.O.C.)
No. 459, Liencheng Rd., Chungho City, Taipei County 235, Taiwan (R.O.C.)
No. 2, Chukuang Rd., Chungho City, Taipei County 235, Taiwan (R.O.C.)
No. 260, Sec. 2, Peihsin Rd., Hsintien City, Taipei County 231, Taiwan (R.O.C.)
No. 290, Chungcheng Rd., Hsintien City, Taipei County 231, Taiwan (R.O.C.)
No. 124, Sec. 1, Hsuehfu Rd., Tucheng City, Taipei County 236, Taiwan (R.O.C.)
No. 223-6, Sec. 2, Chungyang Rd., Tucheng City, Taipei County 236 , Taiwan (R.O.C.)
No. 113, Sec. 1, Hsuehfu Rd., Tucheng City, Taipei County 236, Taiwan (R.O.C.)
No. 160, Chungshan 1st Rd., Luchou City, Taipei County 247, Taiwan (R.O.C.)
No. 28, Sanmin Rd., Luchou City, Taipei County 247, Taiwan (R.O.C.)
No. 203, Changan St., Luchou City, Taipei County 247, Taiwan (R.O.C.)
No. 1, Sec. 1, Hsiwan Rd., Hsichih City, Taipei County 221, Taiwan (R.O.C.)
No. 89, Chunghsing Rd., Hsichih City, Taipei County 221, Taiwan (R.O.C.)
No. 84, Kungshang Rd., Wuku Hsiang, Taipei County 248, Taiwan (R.O.C.)
No. 288, Sec. 1, Chungshan Rd., Shulin City, Taipei County 238, Taiwan (R.O.C.)
No. 61, Sanchun St., Shulin City, Taipei County 238, Taiwan (R.O.C.)
No. 212, Chienkuo Rd., Yingke Town, Taipei County 239, Taiwan (R.O.C.)
No. 60, Sec. 2, Yingtao Rd., Yingke Town, Taipei County 239, Taiwan (R.O.C.)
No. 416, Sec. 2, Mingchih Rd., Taishan Hsiang, Taipei County 243, Taiwan (R.O.C.)
(02) 2303-8222
(02) 2933-9831
(02) 2932-8540
(02) 2788-5265
(02) 2968-1616
(02) 8952-2200
(02) 2967-1112
(02) 2954-7761
(02) 2257-2199
(02) 2955-3678
(02) 2687-6869
(02) 2992-9898
(02) 2201-6123
(02) 2992-3123
(02) 2996-8840
(02) 2202-7700
(02) 2205-8170
(02) 2983-3008
(02) 8985-2888
(02) 2972-8787
(02) 2981-1335
(02) 2982-0711
(02) 2982-6239
(02) 2999-1418
(02) 2976-2159
(02) 2995-8998
(02) 2232-9988
(02) 2927-4000
(02) 2944-1960
(02) 2223-4077
(02) 2963-0303
(02) 2912-7799
(02) 2917-2202
(02) 2266-2000
(02) 2260-8122
(02) 2270-3800
(02) 8285-0088
(02) 2281-8966
(02) 2289-6186
(02) 2642-1561
(02) 2694-9898
(02) 2291-7333
(02) 2683-8668
(02) 2688-9030
(02) 2678-6000
(02) 2678-6999
(02) 2903-0903
Dep. / Branch Name Address Telephone No.
Shenkeng Branch
Tanshui Branch
Miaokou Branch
Chilung Branch
Neili Branch
Taoyuan Branch
Chungli Branch
North Taoyuan Branch
South Taoyuan Branch
Linkou Branch
Kuanyin Branch
Nankan Branch
Hukou Branch
Chupei Branch
Hsinchu Branch
Kuanghua Branch
Chuke Branch
Lotung Branch
Yilan Branch
Taichung Branch
North Taichung Branch
South Taichung Branch
Hsitun Branch
Fengyuan Branch
Changhua Branch
Yuanlin Branch
Chiayi Branch
North Tainan Branch
Tainan Branch
East Tainan Branch
Yungkang Branch
Kaohsiung Branch
Sanmin Branch
South Kaohsiung Branch
Lingya Branch
North Kaohsiung Branch
Fengshan Branch
Pingtung Branch
Hong Kong Branch
Kowloon Branch
Macau Branch
Bei-Guan Sub-Branch
Los Angeles Branch
Vietnam Representative Office
No. 156, Sec. 3, Peishen Rd., Shenkeng Hsiang, Taipei County 222, Taiwan (R.O.C.)
No. 57, Minchuan Rd., Tanshui Town, Taipei County 251, Taiwan (R.O.C.)
No. 10, Jen 5th Rd., Jenai District, Chilung City 200, Taiwan (R.O.C.)
No. 2, Yi 1st Rd., Chungcheng District, Chilung City 202, Taiwan (R.O.C.)
No. 321, Huanchung E. Rd., Chungli City, Taoyuan County 320, Taiwan (R.O.C.)
No. 51, Fuhsing Rd., Taoyuan City, Taoyuan County 330, Taiwan (R.O.C.)
No. 160, Tzuhui 3rd St., Chungli City, Taoyuan County 320, Taiwan (R.O.C.)
No. 656, Chunjih Rd., Taoyuan City, Taoyuan County 330, Taiwan (R.O.C.)
No. 839, Chungshan Rd., Taoyuan City, Taoyuan County 330, Taiwan (R.O.C.)
No. 53, Wenhua 1st Rd., Kueishan Hsiang, Taoyuan County 333, Taiwan (R.O.C.)
No. 3, Kungyeh 5th Rd., Kuanyin Hsiang, Taoyuan County 328, Taiwan (R.O.C.)
No. 310, Chungcheng Rd., Luchu Hsiang, Taoyuan County 338, Taiwan (R.O.C.)
2F, No. 22, Chunghua Rd., Hukou Hsiang, Hsinchu County 303, Taiwan (R.O.C.)
No. 87-6, Kuangming 6th Rd., Chupei City, Hsinchu County 302, Taiwan (R.O.C.)
No. 295, Sec. 2, Kuangfu Rd., Hsinchu City 300, Taiwan (R.O.C.)
No. 35, Tienmei 3rd St., Hsinchu City 300, Taiwan (R.O.C.)
No. 472, Sec. 1, Kuangfu Rd., Hsinchu City 300, Taiwan (R.O.C.)
No. 205, Chungcheng Rd., Lotung Town, Yilan County 265, Taiwan (R.O.C.)
No. 33, Sec. 3, Chungshan Rd., Yilan City, Yilan County 260, Taiwan (R.O.C.)
No. 101, Sec. 1, Tzuyu Rd., West District, Taichung City 403, Taiwan (R.O.C.)
No. 1027, Sec. 3, Wenhsin Rd., Peitun District, Taichung City 406, Taiwan (R.O.C.)
No. 66, Sec. 2, Kungyi Rd., Nantun District, Taichung City 408, Taiwan (R.O.C.)
No. 22-20, Sec. 2, Taichung Port Rd., Hsitun District, Taichung City 407, Taiwan (R.O.C.)
No. 139, Sanmin Rd., Fengyuan City, Taichung County 420, Taiwan (R.O.C.)
No. 317, Mintsu Rd., Changhua City, Changhua County 500, Taiwan (R.O.C.)
No. 94, Chungcheng Rd., Yuanlin Town, Changhua County 510, Taiwan (R.O.C.)
No. 338, Hsingyeh W. Rd., Chiayi City 600, Taiwan (R.O.C.)
No. 480, Sec. 4, Hsimen Rd., North District, Tainan City 704, Taiwan (R.O.C.)
No. 114, Sec. 2, Chienkang Rd., South District, Tainan City 702, Taiwan (R.O.C.)
No. 163, Sec. 2, Changjung Rd., East District, Tainan City 701, Taiwan (R.O.C.)
No. 725, Chunghua Rd., Yungkang City, Tainan County 710, Taiwan (R.O.C.)
No. 143, Chungcheng 2nd Rd., Hsinhsing District, Kaohsiung City 800, Taiwan (R.O.C.)
No. 78, Mintsu 1st Rd., Sanmin District, Kaohsiung City 807, Taiwan (R.O.C.)
No. 100, Chunghua 4th Rd., Lingya District, Kaohsiung City 802, Taiwan (R.O.C.)
No. 90, Chienkuo 1st Rd., Lingya District, Kaohsiung City 802, Taiwan (R.O.C.)
No. 441, Yucheng Rd., Tsoying District, Kaohsiung City 813, Taiwan (R.O.C.)
No. 366, Kuangyuan Rd., Fengshan City, Kaohsiung County 830, Taiwan (R.O.C.)
No. 14, Fuhsing N. Rd., Pingtung City, Pingtung County 900, Taiwan (R.O.C.)
23F, Two International Finance Centre 8 Finance Street, Central, Hong Kong
18F, One Peking, 1 Peking Rd., Tsim Sha Tsui, Kowloon, Hong Kong
No.52-58 Avenida do Infante D. Henrique, Macau
Parca Das Portas Do Cerco No.40 AR/C, Macau
350 South Grand Avenue, Suite 1650, Los Angeles, CA 90071, U. S. A.
Saigon Riverside Office Center, 17th floor, 2A-4A, Ton Duc Thang Street, District 1,
Ho Chi Minh City, Viet Nam
(02) 2664-2626
(02) 2624-1788
(02) 2423-2323
(02) 2423-1161
(03) 435-8888
(03) 333-9000
(03) 427-8988
(03) 317-8889
(03) 369-2727
(03) 397-5888
(03) 483-9677
(03) 321-4126
(03) 597-2277
(03) 553-0000
(03) 572-8866
(03) 535-6688
(03) 564-5555
(039) 545-421
(039) 324-511
(04) 2220-5766
(04) 2293-8101
(04) 2323-2468
(04) 2313-6106
(04) 2520-8966
(04) 726-3111
(04) 837-8068
(05) 235-7888
(06) 282-3888
(06) 223-2888
(06) 200-5566
(06) 202-8599
(07) 224-3733
(07) 392-8988
(07) 535-1111
(07) 725-6101
(07) 557-5888
(07) 710-8866
(08) 732-3322
(852) 2801-2801
(852) 3655-8688
(853) 2871-5175
(853) 2823-8688
(1-213) 437-4800
(848) 825-7612
Dep. / Branch Name Address Telephone No.
Financial Highlights
(in NT$ millions, except per share data)
5,725
4,568
719,554
611,431
956,871
64,135
0.98
13.99
0.57
81.64
77.03
23,207.26
18,257.52
30,177.26
1,957.57
0.02
0.43
0.01
2,661
2,511
756,464
595,122
983,658
63,809
0.55
13.92
0.3243
2006 2005
NT$ US$ (1) NT$
For the year
Pretax income (include cumulative effect
of accounting changes)
Net income
At year-end
Deposits and remittances
Discounts and loans
Total assets
Shareholders' equity
Per share
Earnings per share
Shareholders' equity per share
Dividends declared per share (2)
- Cash dividend
- Stock dividend
Note: (1) US dollar amounts are converted for convenience only at NT$32.596 per dollar, the prevailing rate on Dec. 29, 2006.
(2) Dividends are distributed in the following year.
Message from the Chairman and the President
08
After almost a year of careful planning and intensive preparation, the formal merger of International Bank of Taipei(IBT) into Bank SinoPac (BSP) was finally realized on November 13, 2006. IBT is a prominent bank with 59 years ofoperations, renowned for its loyal customer base and stable profitability, while BSP is a bank frequently rated byinternational publications as the best bank in Taiwan. The new entity now has a strong operating base with 129branches in Taiwan, as well as an overseas network in 23 locations consisting of business units in Hong Kong, Macau,Vietnam, the U.S., and Mainland China.
We are determined the new Bank SinoPac will make it a long-term development goal to create a new path called the"Financial Silk Road of the 21st Century." We will be devoted to playing a key role as a bridge for businesses andindividuals to enter the swiftly flourishing Greater China market utilizing our leading electronic financial platformsthat provide both innovation and an array of differentiated client-focused solutions.
During this period of globalization, when the earth is again seen as flat by more people recently, going global seemsmore compelling for institutions like ours. We do not want to just remain in our home markets, and have chosen to be aglobal player. However, to be global means we have to compete with numerous world-class multi-national banking
conglomerates, even in regional markets. To compete effectively, we have tobecome not only bigger but also more beautiful, or attractive to our customers tosurvive such intense competition. So, our most important job following thismerger would be making Bank SinoPac highly competitive by world standards. The operating environments of financial institutions in Taiwan in the year 2006were extremely harsh due to a "credit-card crisis" never before so severe inTaiwan. It is estimated that the amount of bad credit accounts written off in theyear reached NT$204 billion, and threw the entire Taiwan banking system into acombined loss for the year of approximately NT$7.4 billion.
To make matters worse, due to ample supply of funds in the domestic market onthe one hand, and the declining demand for bank loans across all the industrieson the other, the average loan-to-deposit ratio and the average interestdifferentials of local banks all plunged at an astonishing rate. Back in 2002,when Taiwan's banking industry was devastated by the SARS calamity, theaverage interest differential on loans for all domestic banks dropped to only3.35% per annum. Surprisingly enough, not only did that differential not bounceback, but after the credit-card crisis of 2006, the interest differential dropped
even further to a record low of only 1.85% per annum. Consequently, banks had to write off large amounts of badconsumer loans, and could not make up for the deficit due to the general decline in interest income.
The consumer credit-card crisis also damaged the overall economic performance of Taiwan significantly in 2006, asevidenced by the very slow growth in private consumption. Moreover, the continued movement of manufacturingfacilities to locations outside of Taiwan has resulted in stagnant domestic investment. However, a strong trade surplusallowed Taiwan's economy to grow by 4.62% in 2006. As for 2007, domestic consumption and private investment willgain strength, but that will hardly fully offset the decline in trade expected from slower paces in both China and theU.S. Thus Taiwan's economic growth rate for 2007 is expected to slightly exceed 4%, a small decline from the 2006growth rate.
After the merger and by the end of 2006, Bank SinoPac's total assets reached NT$984 billion, net worth was reported atNT$64 billion, deposits totaled NT$755 billion, and outstanding loans totaled NT$595 billion. Our capital adequacyratio amounted to a healthy 11.34%. However, our net profit suffered alongside the very unfavorable climatethroughout Taiwan's banking industry. Nevertheless, with the large number of banks reporting losses, our loyalcustomer base and strong employee performance allowed us to report an after-tax net profit of NT$ 2.51 billion for2006. Our ROE dropped to 3.93% for the year while we took NT$6.89 billion in loan write-offs. By taking this large loanwrite-off, we maintained our non-performing loan delinquency ratio at 2.13% and our loan loss coverage ratio at 45%.
Paul C. LO, Chairman
www.banksinopac.com
09
On a more positive note, our relentless long-term efforts in developing an international network of financial servicesplatforms produced very strong results. The aggregate profits of our overseas business units, including Far EastNational Bank, our subsidiary in the U.S., our Los Angeles Branch, Hong Kong and Macau Branches, and SinoPacCapital Ltd., our subsidiary in Hong Kong, in 2006 already exceeded US$46 million, surpassing all other Taiwanfinancial institutions. We will continue to expand our Asia-Pacific presence, escalate the efficiency of our "two-shore-five-location" business platforms, maintaining and even enlarging our competitive advantage in overseas businessdevelopment among our Taiwan banking peers.
During the year just passed, our corporate financial services efforts relied on our sturdy base of loyal corporatecustomers, and have provided innovative, integrated and customer-oriented cross-border solutions and superioroverseas product delivery services, to cultivate deep rewarding business relationships with new and existingcustomers. Especially for large clients whose cross-border logistics requirements are very complex, we havetechnology-advanced financial platforms with efficient delivery capabilities in place to provide optimal financialsolutions for our clients. In 2007, the first full year of operations for the combined bank, we will continue strengtheningour highly competitive Hong Kong-Macau and other overseas business platforms with new innovative capabilities.
As for our individual financial services business, after our bank merger, BankSinoPac's total consumer loans have reached NT$339 billion, placing us 5th inthe Taiwan market. In addition, our traditional consumer loan and mortgagebusiness is strongly enhanced with individual banking products such asinsurance, mutual funds, and auto loans, all leading players in the market.Moreover, we will exploit another powerful advantage, our leading number of102 branch servicing units in the high wealth greater Taipei area. Also, we willinitiate client-oriented plans to deepen our business relationships with individualcustomers of both wealth management products and housing loan, thus elevateourselves from simply a product seller to a professional personal assetmanagement advisor for our customers.
To cope with the fierce competition and increasing challenges in our targetmarkets, Bank SinoPac has, continuously over the years, remained fullycommitted to customer service quality and efficient product delivery. As aresult, we continue to be recognized as one of the best, when rated by financialpublications, among Taiwan's leading financial institutions. For instance, the"Ten Best Service Business Rating" article, released in the November 2006 issue of Global Views Monthly, put usnumber one in Taiwan for the heartiest, most sincere customer service from our representatives behind our branchcounters. In addition, the September 2006 issue of Asiamoney gave us the title of "Best Domestic Provider of ForeignExchange Services."
In the coming year of 2007, the new integration-completed Bank SinoPac will be in a strong position to expand itsefforts in developing corporate, individual banking, and financial market businesses both domestically and abroad. Ournetwork of branches and service platforms across the Asia-Pacific region allows us to strengthen our product deliveryand enhance valuable relationships with the increasing number of clients doing business in the region. In addition, thesynergies and benefits of merger provide both scale and scope to our capabilities and resources. The increasedeconomic activity in the Asia-Pacific markets that we serve presents both increased competition and abundant valuableopportunities for us. We are confident that Bank SinoPac, with the loyal support of our customers, the dedicated workethics of our employees, and the continued patronage of our shareholders, will be successful in meeting the newchallenges in this thriving Greater China market.
Chen Pou-tsang (Angus Chen), President
Paul C. Lo
Chairman
Chen Pou-tsang
(Angus Chen)
President
10
Corporate Profile
Background
Bank SinoPac ('BSP'), a wholly owned subsidiary of SinoPac Financial Holdings Co., Limited ('SPFH'), is a full-servicecommercial bank with banking services equally emphasized in corporate and individual sectors. In addition totraditional banking services in savings and loans, BSP has put a lot of efforts on the integration of financial productsand the enhancement of the technology content in its service platforms. Back in 2000, BSP launched its MoneyManagement Account (MMA), a truly state-of-the-art product that could consolidate customers' accounts in savings,loans, securities, mutual funds and credit cards into one summary, and consequently into one account, and thus enableour customers to manage their assets much more easily and efficiently. Since then, BSP has become the clear marketleader in product innovation in the Taiwan banking community. We followed with a number of similar, yet moreadvanced creative products for our customers by utilizing our expertise in e-commerce and our established channels ofcross-border banking services, such as B-to-B Pay-Web, e-Factoring Payment System, as well as our powerfulCrossPacific Account (CPA). Through these products, we can help our clients establish highly effective managementtools in cash flow and portfolio management.
After years of expansion, BSP has not only conducted business throughout Taiwan, but also had it extended into HongKong, Macau, Vietnam, China and the United States. Furthermore, on Nov. 13th, 2006, BSP announced the completion ofthe merger with the International Bank of Taipei ('IBT'), which is also a member of SPFH with 59 years of operations,and operating more branches in the Greater Taipei area than any other bank, and consequently, has the strongestcustomer base of small and medium businesses in that area. Benefiting from the merger of the two banks, the new BSPhas inherited both their achievements and resources, including those comprehensive business networks, innovativeproduct lines and advanced information systems. Now it has already built up an operational structure consisting of 10divisions, three business groups and an offshore banking unit, as well as 129 local branches, five overseas branches(two in Hong Kong, two in Macau, and one in Los Angeles), one representative office (in Vietnam), and a Californiasubsidiary, FENB, which owns 15 branches in the U.S, one branch in Vietnam, and one representative office in Beijing.As of the end of 2006, the bank employed a staff of almost 5,000 and reported paid-in capital over NT$46 billion andtotal assets of NT$984 billion.
In addition to the above, BSP currently owns these other subsidiaries: SinoPac Leasing Corporation, SinoPac CapitalLtd. (HK), SinoPac Life Insurance Agent Co., Ltd., SinoPac Property Insurance Agent Co., Ltd., and SinoPac FinancialConsulting Co., Ltd. Each renders specialized and distinctive financial services that are different from one another and thoseoffered by BSP. By integrating the resources from these subsidiaries, BSP can thereby set a long term goal to provide thestate-of-the-art financial services to our worldwide customers, so as to create a financial "new silk road of the 21st Century".
11
December 31, 2006General Corporate Data
January 28, 1992
June 29, 1998
May 9, 2002
NT$63,809 million
NT$45,852 million
4,585.2 million
4,740
Deloitte Touche Tohmatsu
Baa2
Prime-3
Stable
BBB
A-2
Stable
BBB+
F2
Stable
twA+
twA-1
Stable
Date of incorporation:
Date of listing on Taiwan Stock Exchange:
Re-listing date of SinoPac Holdings:
Total shareholders' equity:
Paid-in capital:
Number of shares issued:
Number of employees:
Auditor:
Moody's Ratings (Oct. 4, 2006)
Long-term deposits rating:
Short-term deposits rating:
Rating outlook:
S&P Ratings (Aug. 28, 2006)
Long-term credit rating:
Short-term credit rating:
Rating outlook:
Fitch Ratings (Aug. 17, 2006)
Long-term senior:
Short-term senior:
Rating outlook:
Taiwan Ratings (Aug. 28, 2006)
Long-term credit rating:
Short-term credit rating:
Rating outlook:
Strategic Information
Corporate Mission
Our general mission is to operate as a highly professional, full-service bank throughout the Pacific Rim. To be morespecific, we have these aims:
■ To provide an increasing range of services to an increasing variety of customers.■ To render service in the friendliest, most responsive and most efficient manners.■ To enlarge our business territory to include most areas around the Pacific Rim, starting in the U.S., Hong Kong and
other Asian countries.
Business Philosophy
These are our guiding principles:
■ Customer focus■ Prudence and precision■ Unity and harmony■ Creation of profit■ Contribution to society
www.banksinopac.com
12
And these are the ethical standards we adhere to:
■ Diligence and dedication■ Astuteness and empathy■ Accuracy and fulfillment■ Integrity and sincerity
Business Policy
We aim to become a premier regional bank in the Asia-Pacific region early in the 21st Century, and start paving afinancial new silk road to help businesses and individuals from all over the world tap the sharp-rising Greater Chinamarket. To expedite that, we will be expanding operations locally and overseas, striving toward service excellence anddiversifying product lines, business lines, business territories, and funds and revenue sources. These are our guidelines:
■ Appropriately organize and manage key elements such as staff, funds, technology and information to builddistinctive bank strengths and competitive positions.
■ Create a winning solution for customers, shareholders and employees through product standardization, serviceuniqueness and process automation, thereby improving efficiency, raising service quality, reducing operating costsand appropriately distributing resources.
■ Maintain balance among corporate banking, individual banking and financial market operations to improve ourability to provide diverse and comprehensive customer services.
■ Build up a diversified channel system consisting of both branch locations and virtual networks, through whichcustomized and value-added financial services can be rendered for the whole Asia-Pacific region.
■ Develop an ownership culture within the bank whereby employees regard the bank's development as personallyrewarding. Encourage initiative, innovation and self-improvement.
■ Continue an aggressive yet prudent business policy by balancing aggressive business performance with quality,highly liquid and secure assets.
■ Apply information technology as a marketing tool, to attract new customer groups with specific attributes, and toform a conceptual financial market place.
■ Promote management depth and teamwork among staff. Develop strong staff willingness to respond to market andorganization changes.
■ Make the best of our industry-leading information technology, to help benefit our business development through theappropriate application of management tools such as Customer Relationship Management, Risk ManagementPlatform, and Customer Value Analysis.
■ Elevate our position from a financial products provider to an asset management advisor for customers.
Business Goals
To achieve these strategic objectives, we have these mid- to short-term goals to pursue:
■ To achieve synergy benefits from the merger just completed, and fully utilize our enlarged operations scale, so as tofurther decrease our operating cost, and greatly increase our competitiveness.
■ To reconfigure the branch business model with strong channels in the Greater Taipei area, to become the leadingretail and small- and medium-sized enterprise (SME) bank in that area where wealth is highly concentrated, andthereby enhance branch profitability.
■ To actively broaden our sources of income, and especially focus on those businesses that can generate feesincome as well as those relating to financial market dealings, in order to address the trend of persistent decreasinginterest differential and demand for bank loans.
■ To seek to expand its overseas business and, specifically, strengthen its Hong Kong and Macau Business Platform,become a distinctive leading player in the Greater China market.
■ To enlarge customer base through integration and enhancing R&D in value-added products.
Corporate Profile
www.banksinopac.com
13
■ To provide a full range of financial services and products, especially to retail and SME customers, while rendering nicheproducts to medium and large companies.
■ To further penetrate mass affluent & high-wealth customers with a particular focus on individual and branch-basedservices.
■ To offer value adding financial tools (e-Factoring, e-Collection, etc.) to SMEs with service needs across the Greater Chinaregion.
■ To deeply cultivate selected medium and large companies with sophisticated and cross-border financial needs by providingintegrated services (CPA, MMAb2b, etc.) through our integrated business platform.
Human Resources
Employee Statistics
Year-end
Number of staff
Average age
Average seniority
Education
Ph.D. degree
Master's degree
University and college
Junior college & others
Total
2006 2005 2004
4,740
34.27
8.63
0.04%
13.54%
74.69%
11.73%
100.00%
4,991
32.50
8.54
0.06%
11.92%
72.40%
15.62%
100.00%
4,773
32.59
7.84
0.06%
11.57%
73.01%
15.36%
100.00%
Title
Chairman
Director
Director
Director
Director
Director
Director
Director
Director
Supervisor
Supervisor
Supervisor
Name
Paul C. Lo
Lee, Liang-Chin
Ho, Yi-Da
Ho, Show-Chung
Lin, Ying-Feng
Hsu, Cheng-Tsai
Chen, Pou-Tsang
Chern, Jenn-Chuan
Chia, Chen-I
Eli C. Wang
Nancy C. Lee
Huang, Chung-Hsing
Date ofAssignment
April 19, 2004
April 19, 2004
April 19, 2004
April 19, 2004
April 19, 2004
April 19, 2004
April 19, 2004
April 19, 2004
April 19, 2004
April 19, 2004
April 19, 2004
April 19, 2004
Office Term(Yrs)
3
3
3
3
3
3
3
3
3
3
3
3
Positions Held Concurrently
CEO, SinoPac Holdings
Chairman, Ever Trust Investment Co., Ltd.
AVP, Yuen Foong Yu Paper Mfg. Co., Ltd.
Chairman, SinoPac Holdings
Professor, National Chengchi University
Chairman, Formosan Rubber Group, Ltd.
President, Bank SinoPac
Professor, Dept. of Civil Engineering, National Taiwan
University
President, Individual Financial Services Group, Bank
SinoPac
Managing Partner, Eli C Wang & Co CPAs
Chief Auditor, SinoPac Holdings
Associate Professor, Dept. of Business Administration,
National Taiwan University
February 28, 2007
Board of Directors & Supervisors
* All directors and supervisors are legal representatives of SinoPac Holdings.
14
Corporate Profile
● Angus P. T. Chen
President
● Chen-I Chia
Senior Executive Vice President and Chief Operating Officer
● Desmond Jiang
Executive Vice President
● Eugene Huang
Executive Vice President & Head of Division, Information Technology Division
● C. J. Chen
Senior Executive Vice President & Head of Division, Financial Products Division
● Chao Pang Chen
Executive Vice President & Head of Division, Credit Division
● Hsi-Chuan Lien
Executive Vice President & Head of Division, Retail Credit Division
● Scoty Pan
Executive Vice President & Head of Division, Administration Division
● Brian Lin
Executive Vice President & Head of Division, Wealth Management Division
● Kim Liu
Executive Vice President & Head of Division, Business Banking Division
● Lupe Chuang
Executive Vice President & Head of Division, Liquidity Management Division
● Swei-Yuan Hsu
Executive Vice President & Chief Secretary
● Wen-Yir Lu
Executive Vice President & Head of Division, Corporate Banking Division
● David Han
Executive Vice President & Head of Division, Retail Business Division
● Shu-Chun Pao
Executive Vice President & Head of Division, Accounting Division
● Amy Han
Executive Vice President & Head of Division, Human Resources Division
● Ted C.Y. Liao
Executive Vice President & Head of Division, Investment Business Division, and General Manager, Offshore
Banking Unit
● Ted T. T. Liao
Executive Vice President
● S. F. Yang
Executive Vice President & Chief Auditor
● Chi-Lin Huang
Executive Vice President & Deputy Head of Division, Wealth Management Division
February 28, 2007
Executive Officers
15
Economic and Financial Review
Global Overview
In the beginning of year 2006, the world's economy was approaching a rather fair situation. The profitability ofenterprises in the U.S., Japan and the Euro Zone all reached a higher level than previous quarters, and most stockmarkets around the world were appearing bullish. Whereas, subsequently, oil prices and raw material costs bothstarted soaring and the inflation pressure was consequently growing. That pushed the Federal Reserve of the U.S. toraise the Fed Funds rate, separately, at the end of March, May and June in the first half of the year. On the other side ofthe Atlantic, and for the same reason, the European Central Bank also lifted the benchmark rate in early March.Basically, the first half of 2006 was characterized by a series of adjustments in reflection of a relatively high level of oilprices, raw material costs and interest rates.
Afterwards, in consideration of the slowdown in the housing market and an already high market interest rate level, theFed did not raise the Fed Funds rate any further and allowed it to remain at 5.25% until the end of the year. Thebooming status of the U.S. economy prevalent in the beginning of 2006 was not to be seen for the rest of the year. Onthe other hand, the European Central Bank had continued to lift the benchmark rate several times until it reached 3.5%,in order to prevent inflation from damaging the steady economic expansion in the Euro area. Thereafter, oil pricesstarted to plunge after August. At just about the same time, the Bank of Japan also decided to end the zero-interest-ratepolicy by raising the key rate from zero to 0.25% in July reflecting the fact that the economic recovery has been on themove gradually. Values of main trading currencies moved along with each of their interest rate levels accordingly. Forexample, the Euro appreciated 11.4% against the U.S. dollar and 12% versus the Japanese yen, while the yen declined1.11% against the U.S. dollar throughout 2006. The case was quite different for the renminbi as it rose by 3.28%against the U.S. dollar for the whole year due to the huge trade surplus earned by China. As to the investment market,motivated by abundant in-flow of capital, most stock exchanges in the world saw very strong performance. Amongthem, the China stock market ranked first with total market caps advancing by more than 100%. Other countries, suchas the U.S. (Dow Jones), Hong Kong, Singapore and Australia, also posted record highs.
In aggregate, the global economy as a whole performed quite well during 2006, with developed economies (such as theU.S.) expanding moderately and the emerging economies (such as China and India) growing sharply. According to theestimation by Global Insight, the worldwide economic growth rate for 2006 would arrive at 3.9%, a little higher thanthe 3.5% of the previous year.
Trend of Crude Oil Prices (monthly average) Source: Bureau of Energy, Ministry of Economic Affairs.
16
For the prospects of 2007, first of all, the originally downward trend of crude oil prices caused by decreasing demand,
which was driven by factors such as the mitigation of the Middle Eastern tension, the slowdown of the U.S. economy
and the consequences of global warming, is expected to moderate or even reverse following OPEC's possible production
adjustments. Secondly, it is believed that the U.S. Fed would confront the rate-cutting issue again sooner or later, once
the domestic inflation pressure is released, while the interest rate level of the Euro area is still low even after several
increases in 2006. This would provide the European Central Bank enough room for further rate hikes and strengthen
the Euro. However, the yen, already hobbled under the low-rate policy of the Bank of Japan, will likely remain weak. As
to the renminbi, it is expected to appreciate moderately to reflect the ever expanding Chinese trade surplus, or, possibly,
appreciate sharply should the Chinese authorities loosen its controls on foreign exchange trading.
As a whole, it is expected that the U.S. housing market would continue to slow down and the expansion of the economy
would therefore be dampened with the growth rate being reduced to 2.4% in 2007. Fortunately, its negative impact on
the global economy may be offset by some extent due to the persistent momentum of recovery in Europe and Japan,
and robust growth in the emerging economies. Global Insight projected that the global economic growth rate could
reach 3.3%, only a little lower than the previous year. Whereas, global uncertainties such as extreme weather
conditions and floods may lead to even more devastating damages, and also potential threats, such as attacks from
terrorists, crisis of nuclear weapons linked to Iran and North Korea, and war in the Middle East, are all variables that
might influence the global economy significantly.
Source: Central Bank of the Republic of ChinaTrend of the US dollar against the Euro in 2006
Domestic Outlook
Despite the steady growth of international business activities and stronger global economic momentum, domestic
demand in Taiwan in 2006 was extraordinarily sluggish. The influence of a severe consumer credit crunch, which
originated more than a year ago, kept the economy down, and even started permeating into areas other than the
banking industry. Retail selling, worst of all those of department stores, supermarkets and car dealerships, slumped
dramatically. As a result, it was estimated that the growth rate of private sector consumption, which accounts for
nearly 60% of GDP, was only 1.5% throughout 2006, a decrease of 1.2 percentage points from the previous year. The
investment in the private sector also appeared weak and only reported a slight growth of 1.3%. Fortunately, foreign
Economic and Financial Review
www.banksinopac.com
17
trade, supported by vigorous international economies, showed unexpectedly growth as export orders hit record highs.
As a result, exports and imports for 2006 both scored two-digit growth (12.9% and 11%, respectively), and total
foreign trade exceeded 400 billion U.S. dollars for the first time, with the trade surplus amounting to US$21.2 billion.
Since the impact of sluggish domestic demand was more than offset by the influence of prosperous foreign trade, the
Taiwanese economy as a whole could still be moving smoothly. According to the estimates of the statistical authority,
the GDP growth rate of Taiwan for 2006 would rise to 4.62%, from 4.03% of the previous year. Under these
circumstances, the domestic industrial production should keep at some reasonable level. However, due to a higher
comparison base period and a ever-rising proportion (up to nearly 45%) of overseas production for major
manufacturing industries, the growth rate of the industrial production index dropped month after month in 2006, and
even became negative in December. While, comfortingly, the employment status was getting better. The average
unemployment rate in 2006 declined to 3.91%, from 4.13% of the previous year, marking the lowest level for the most
recent six years. As for the consumer price index, which had been suppressed by weak domestic demand, it remained
relatively stable and rose by only 0.6 percentage point for the year 2006.
In respect of capital market movement, benefiting from the overwhelming inflow of foreign capital, the domestic
stock market maintained bullish for the most part of the year. The TAIEX rose 1275.38 points, or 19.47%,
throughout 2006, and in the period reached a new record high for the past six years. The accumulated net
overbought position by foreign investors had amounted to NT$560 billion till the end of the year, constituting the
major driving force for the market's bullishness. In addition to that, a stream of cross-border M&A activities had
also been created in Taiwan. In 2006, those domestic enterprises acquired by foreign private funds or enterprises
included HiBank (acquired by Standard Chartered Bank), Taiwan Green Point Enterprise (by Jabil), Advanced
Semiconductor Engineering Group (by Carlyle Group), and many others, whose transaction value totals amounted to
as high as US$ 7 billion. As such, the total amount of foreign investment approved in 2006 could surpass the
threshold of US$ 10 billion easily, and reach US$ 14 billion in the end, increased by 230% annually, and reaching a
historical high.
Turning to the domestic monetary situation, the growth rate of money supply shrank in 2006 because of the slowing
of consumption and investment. According to the statistics of the Central Bank, the growth rates of M1a、M1b in
2006 declined to 5.72% and 5.30% from 7.65% and 7.10% in 2005 respectively, while that of M2 remained at 6.22%.
The Central Bank raised the benchmark rates 12.5 basis points at the end of each of the four quarters, in order to
maintain the balance between the U.S. Fed Fund rate and domestic real interest rate. As a whole for the year 2006,
the rediscount rate was lifted by 50 basis points, to 2.75%. Nevertheless, the weighted average of overnight interest
rate in the market had only been pushed up 25 basis points throughout the year to 1.661%, and the interest rates for
deposits less than one year offered by banks had also gone up slightly to around 2.2%. As for the exchange rate of
the NT dollar, the movement was in reverse to that of the U.S. dollar for the most part of 2006. It appreciated
markedly in most of the first, second and fourth quarter of 2006, while depreciated moderately in the remaining days.
At the end of the year, the NT dollar closed at NT$32.596 against the U.S. dollar, representing a net rise of 0.78%
throughout the year 2006.
For the coming year, following expected weakening of the global economy, the GDP growth rate would also decline
slightly, to 4.30%. Of which, exports and imports would both increase about 6% annually, though the figures in the
comparison base period were already very high. Moreover, domestic demand would be recovering gradually as the
impact of the consumer credit crunch begins to fade. Then the growth rate of consumption in the private sector is
expected to rise to a normal level of around 3% per annum, and the consumer price index would also be going up
moderately to 1.52% a year. However, the Central Bank may raise the benchmark rates further, in view of a sustained
low real interest rate level and the rebounding of consumption level and price index. In spite of the sharp upward
18
Economic and Financial Review
Source: Central Bank of the Republic of ChinaMovement of the Exchange Rate of NT$ against US$ in 2006
moving of the U.S. dollar in early 2007, considering the expected narrowing of the interest rate gap between Taiwan
and the U.S., the persistent inflow of western capital, and the giant pressure on the renminbi's appreciation, the odds for
the NT dollar to appreciate against the U.S. dollar in the year is high. However, based on the government's long-time
policy of not impairing the competitiveness of exports, the pace and extent of that appreciation should be relatively
moderate and orderly.
Nevertheless, the loosening of the restrictions on the economic and trade relations between both shores of the Taiwan
straits still seems not very likely in the near future, while the disturbance in domestic political activities are becoming
much more severe recently, and challenges like these will surely be unfavorable to the positive development of the
domestic demand in Taiwan. In addition, the uncertainties in the global status will also be affecting the movement of
local economic development.
The Central Bank raised discount rate, the interest rate of accommodation with collateral, and the
interest rate of accommodation without collateral by 12.5 basis points each to 2.375%, 2.75% and
4.625%, respectively.
We co-arranged a US$70 million syndication loan for Videocon Industrial Co. of India.
We arranged a US$40 million, four-year syndication loan for PT Maspion of Indonesia, with Chinatrust
Commercial Bank and First Commercial Bank being the co-arrangers.
The Central Bank raised discount rate, the interest rate of accommodation with collateral, and the
interest rate of accommodation without collateral by 12.5 basis points each to 2.5%, 2.875% and
4.75%, respectively.
We arranged a NT$4 billion syndication loan for Macquarie Securities.
The Financial Supervisory Commission (FSC) approved the merger of Bank Sinopac and International
Bank of Taipei.
The Central Bank raised discount rate, the interest rate of accommodation with collateral, and the
interest rate of accommodation without collateral by 12.5 basis points each to 2.625%, 3% and
4.875%, respectively.
FSC approved our application for establishing Kowloon Branch, our second branch in Hong Kong.
We were ranked as number one in the banking industry of Taiwan among the 'Ten Best Service
Business Rating', released by Global Views Monthly.
FSC approved the application of International Bank of Taipei for establishing Bei-Guan Branch, its
second branch in Macau.
The merger of Bank SinoPac and International Bank of Taipei became effective.
We won the "Best E-bank Award" and the "Best Corporate Image Promotion Award" of the 2006
Taiwan Outstanding Financial Service Contest conducted by Taiwan Academy of Banking and
Finance.
Our Lanya Branch in Taipei opened.
We were rated by FSC as the top performer in the study of "Evaluation of the Effectiveness of
Consumer Protection in Taiwan's Banking Industry".
The Central Bank raised discount rate, the interest rate of accommodation with collateral, and the
interest rate of accommodation without collateral by 12.5 basis points each to 2.75%, 3.125% and
5%, respectively.
19
Significant Events in 2006
● Mar. 31
● Apr. 10
● June 8
● June 30
● Aug. 15
● Sep. 7
● Sep. 29
● Oct. 12
● Nov. 1
● Nov. 7
● Nov. 13
● Nov. 17
● Nov. 21
● Dec. 18
● Dec. 29
20
Operating Report
Business Review
Individual Financial Services Group
In 2006, Individual Financial Services Group, in addition to the abundant efforts and resources put in the merger-
related activities, has made significant progress in its own business development, and posted very strong performance
for the year.
Retail Business
The Taiwan banking industry went through an extremely hard time in the personal banking sector in 2006. Due to the
card-credit crisis, most of the financial institutions had encountered a distressed situation of increasing bad loans and
decreasing revenues, thus reduced the bank's profitability. BSP, thanks to its strict credit policy adopted ever since it
initiated operations, did not focus on that segment of the business and the negative impact was therefore minor.
However, our unsecured consumer loans still suffered indirectly. To make matters worse, in reaction to the turmoil in
the credit/cash card market, most financial institutions turned to aggressively attacking the mortgage loan business,
which is also our core business, thus heated up the competition and drove our profit down. Facing the challenge, we
had tried very hard on reducing the cost of capital, enlarging the interest differentials, and, in addition, on the
innovation of products, deepening our market differentiation. Furthermore, we also strived to categorize customer
groups by attributes through utilizing a Customer Relationship Management system, and to deploy different small-
sized promotion projects to fit the different needs of those customer groups, with a hope to broaden our business scale
and to keep the profitability from falling. In addition to that, we had devoted ourselves on intensively plowing our
extensive and qualified mortgage customer base, interactively strengthening the business relationship between each
other, in order to be fully aware of their financial requirements and to identify the Wealth Management business
opportunity among them, so as to provide one-stop personal financial services for them. By all these measures, we
could finally stabilize our market positions in the Individual Financial Services sector in Taiwan's highly competitive
environments and successfully fortify our own foundation for the future development within Bank SinoPac.
Through the efforts mentioned above and together with the help of the synergy of the merger with IBT, as of the end of
2006, our total outstanding of consumer loans reached NT$339 billion, representing a market share of 5.42%, and
ranking 5th among domestic banks. Of which, the balance of mortgage loans exceeded NT$300 billion and ranked 3rd in
the market; auto loans was NT$ 7.6 billion and ranked 5th; unsecured consumer loans was NT$25 billion. As to asset
quality, we maintained an NPL ratio of 2.08% for consumer loans, a somewhat high level due to the recent consumer
credit crunch.
Wealth Management Business
In recent years, the Wealth Management market in Taiwan has been growing significantly, and its prospects were
regarded as very promising by most of the domestic banks. We, sharing the same view, have exerted lots of effort on
the development of related business. In 2006, we keep on pushing our previous efforts in this field. Following the
merger of IBT and BSP, and to take advantage of our vastly increased size and resources, we made an overall
renovation to our organization, and established a dedicated Wealth Management Division to assume responsibilities of
coordination and development activities. We provided professional support to business units all over the island, and
trained financial planners for these units, and helped them obtain professional CFP license and others. We successfully
21
brought forth the policy of customer grading and product matching, through which our financial planners would be
able to provide the most suitable financial product mix to customers based on their financial resources, preference, and
experience, and accordingly to enhance the satisfaction of our high net worth customers. The outcome was very
prominent. As of the day of the merger completion, or November 13th, 2006, our customers of Wealth Management
already exceeded 37,000, and their assets under our management rose to NT$279,638 million. Besides, our total number
of certified financial planners (CFP) reached 230. In summary, our capabilities in Wealth Management, in terms of staff
professionalism, business scale, and overall service quality, have already surpassed the qualifications of domestic
larger banks.
Trust Business
In 2006, our Trust Division, in addition to regularly participating in merger preparations, aggressively developed or
introduced a large variety of new products to cater to the emerging needs of the market, and to take advantage of the
most updated industrial trend and legislative actions. Among which, life insurance linked products and overseas
securities linked products were included, and both have been very popular since they were first brought to the market.
In total, the amount of designated purpose pecuniary trust we handled for investments in local mutual funds and
foreign securities for the whole year of 2006 reached NT$97,598 million, with an accumulated year-ending balance of
NT$110,569 million. Besides, the amount of stocks and corporate bonds attested for the year was NT$58,504 million,
and local mutual funds in custody at the year-end amounted to NT$174,559 million, while the entrusted corporate
bonds balance reached NT$247,147 million. Moreover, the assets under the businesses of custody of domestic securities
for foreign institutions, employee welfare and savings trust, employee pension funds, and discretionary investment as a
whole at the end of 2006 totaled NT$383,002 million.
Corporate Financial Services Group
The merger of Bank SinoPac and International Bank of Taipei gave us a very large loyal customer base of large
corporations and smaller SME customers. The Group made dramatic adjustments in the organization and management
system, in which the marketing arms were rebuilt to fully reflect the most effective division of selling efforts according
to industry categories as well as the size of the corporate customers. In addition, a new business platform, Hong Kong
& Macau Center, was established to effectively integrate our corporate marketing efforts in Southern China.
Corporate Banking Business
Our Corporate Financial Services Group, based on the goal of becoming the most qualified regional bank in the Greater
China area, has made it our dedicated mandate to provide our customers cross regional, cross platform, and globalized
financial services, making them the centerpiece of our corporate business. We have our electronic financial service
platforms in place, with business units in both Hong Kong, the financial pivot in Asia, and Macau, the fastest economic
mover in recent years, and opened our second Hong Kong branch in Kowloon, and our second Macau branch in Bei-
Guan. Our Hong Kong & Macau center platform coordinates and consolidates all business activities in the area. Having
that structure in place, we can consequently link up our other regional resources such as Los Angeles branch, Ho Chi
Ming City Rep Office, as well as our subsidiary, Far East National Bank's international outlets in the U.S., Beijing and
Vietnam. This comprehensive platform structure allows us to effectively construct a cash flow management system
that is broad, responsive, effective, secure, and reliable for our multinational customers.
www.banksinopac.com
22
Operating Report
As to the products we provide, the CPA (CrossPacific Account), already established for more than 3 years, is still our
most technically-advanced and effective tool to help meet the cross border cash management and cross border
financing requirements of both large corporations and SME customers. With its high value added service capabilities to
which our customers have always given very complimentary remarks, this CPA product has already attracted 2,400
corporate users. Moreover, one of our related prestigious product, MMAb2b corporate financial website, has already
registered a list of users of nearly 14,000 companies, by virtue of its convenient online services. Meanwhile, another
product, Factoring by Insurance, launched at the end of 2004, has become our top selling product in recent years, for its
superior functions that effectively reduce operating costs in our factoring business, and help us expand our factoring
business in the U.S. and Europe.
In addition, we had achieved very positive progress penetrating the domestic syndicated loan market in 2006. Besides
participating in numerous cases led by other banks, we have succeeded in leading the arrangement of the factoring-
based syndication loan granted to institutions like PT Maspion of Indonesia (4-year, US$40 million), and Macquarie
Securities of Australia (2-year, NT$4 billion), as well as our third syndication loan for Pine Street Assets Management
Corporation (2-year, NT$2.656 billion).
As a whole, benefiting from the synergy of the merger and the effects of our aggressive marketing promotions
throughout the year, the total outstanding of our corporate loans at the end of 2006 amounted to NT$257 billion.
Although this was a difficult year for the Taiwan economy, nevertheless we were able to maintain a relatively healthy
loan delinquency ratio of 2.2%.
Offshore Banking and Foreign Exchange Business
The business contact across the Taiwan Straits has thrived in 2006 and demands for related financial services have
been increasing persistently. It was just about the time that we established the Hong Kong & Macau Business Platform,
and started to provide integrated cross border services via integrated business units, The Taiwan-based corporate
customers were rushing in to take advantage. At the same time, we also initiated a comprehensive promotion campaign
targeting the small and medium-sized businesses by introducing the application of online trade financing products like
E - Credit Negotiation and E - L/C Issuance, which were closely associated with MMAb2b.com. As a result, our business
volume of foreign exchange transactions increased significantly, and helped produce good performance in our
international trade finance business for the whole year.
In addition to that, we have been more and more active also in the dealing of overseas securities and the involvement of
international syndicated loan in recent years. In 2006 our focus of securities investment was on fixed-income, credit-
linked derivatives and asset-based securitization products, including those of Assets Swap in which we already have
accumulated years of dealing experience, and Credit Structured Products whose market had been growing recently. As
to international syndication loan, our emphasis was on those countries or areas that had been rather stable in both
political and economic situations, especially those relating to financial institutions or internationally competitive
enterprises with a solid business base. We very carefully diversified all important criteria including due date and
location of borrowers in order to control associated risks. By so doing, we could accordingly ensure steady interest
income and appropriate capital gains while only taking a reasonable level of risk.
As of the end of 2006, our total balance of foreign exchange deposits was US$4.42 billion. Our trading volume of export
negotiations and D/P, D/A amounted to US$2.239 billion for the whole year of 2006, ranking 10th among domestic
banks with a market share of 2.49%, while that of import L/C issuance and D/P, D/A reached US$2.576 billion, standing
www.banksinopac.com
23
in 12th place among local banks with 2.43% share of the market. As a whole, our market strength in the foreign
exchange related businesses among local peers is within the top 10.
Financial Market Group
In past years, the competitiveness in financial markets has been getting much more intensive, and that has very much
increased the difficulty of financial operations. The domestic markets, by nature, are not deep markets, and therefore
are unduly and easily influenced by other non-fundamental factors like political issues, cross-Strait tension, and trading
volume, thus the markets' movement tends to be volatile and not easy to predict. As to the international markets, the
hedge funds, the most active player in the global securities markets recently, have been getting ever larger in scale
gradually, and the amount and the momentum of their trading, mostly short-term, have become bigger, and the
multitude of the fluctuation of, say, the currencies' exchange rate and the prices of raw materials, both are their major
trading targets, has unavoidably become larger accordingly, and so those markets' movement is similarly very
unpredictable now.
To make matters worse, following the revelation of the impact of the enforcement of Financial Accounting Standards
No. 34, our listed company customers turned to be conservative regarding risk-aversion operations in interest rates and
exchange rates, and our related fee incomes have hence been decreased. As counter measures, we have developed new
derivatives instruments, and used them to supplement those traditional financial operation products like foreign
exchange forward, interest rate swaps, and outright trading of bills and bonds. We were able to fulfill customers'
demands on asset allocation with customer-tailored solutions, and this also helped us replace traditional fee income.
Also, we were very active in the dealing of bonds' spots and bonds' options in 2006, and had been very successful on
strategically raising the proportion of trading on foreign currency denominated bonds and futures, generating good
revenues in the year. Moreover, we had persistently and aggressively acted as a market maker in the quoting services
of FX SWAP in 2006, through the skillful application of tools for both money market and NT dollar interest exchange,
and not only maintained the leading position in the field, but also earned ‘the Best Domestic Provider of FX Services'
rating granted by Asiamoney.
Operating Summary
1.82%
13.79%
22.14%
37.75%
30.58%
4.90%
26.77%
62.25%
100.00%
Current deposits
Checking
Demand
Savings
Subtotal
Fixed-term deposits
Time deposits
Negotiable certificates of deposit
Savings
Subtotal
Total
12/31/200512/31/2006
Amount %Items
15,231
108,146
160,013
283,390
200,510
48,237
186,790
435,537
718,927
2.12%
15.04%
22.26%
39.42%
27.89%
6.71%
25.98%
60.58%
100.00%
Amount %
13,739
104,213
167,215
285,167
231,012
36,967
202,200
470,179
755,346
In NT$ millionsDeposits
24
Operating Report
0.39%
0.21%
0.80%
24.63%
23.01%
49.42%
1.54%
100.00%
-
-
-
-
Loans
Import and export negotiations
Overdrafts
Accounts receivable - financing
Short-term loans
Medium-term loans
Long-term loans
Non-performing loans transferred from loans
Total
Guarantees, acceptances, letters of credit, etc.
Factoring
Others
Grand total
12/31/200512/31/2006
Amount %Items
2,812
1,319
3,224
149,647
168,421
278,563
7,445
611,431
28,756
15,185
24,097
679,469
0.46%
0.22%
0.53%
24.47%
27.54%
45.56%
1.22%
100.00%
-
-
-
-
Amount %
2,347
1,269
4,728
146,554
136,932
294,131
9,161
595,122
29,443
16,295
21,971
662,831
In NT$ millionsLoans and Guarantees
Corporate banking
Credit outstanding
Loans outstanding
Individual banking
Credit outstanding
Loans outstanding
Total credit outstanding
Total loans outstanding
12/31/200512/31/2006Items
324,258
256,549
338,573
338,573
662,831
595,122
339,737
271,699
339,732
339,732
679,469
611,431
In NT$ millionsCredit Exposure
1.69%
0.44%
2.13%
1.16%
-
Overdue credit & non-performing loans-type A
Overdue credit & non-performing loans-type B
Total overdue credit & under surveillance
Loans charged-off
Bad debt reserve
12/31/200512/31/2006
Amount %*Items
7,591
1,324
8,915
2,142
3,947
1.24%
0.22%
1.46%
0.35%
-
Amount %*
10,030
2,649
12,679
6,890
5,705
In NT$ millionsOverdue Credits
*Based on total loan balance on designated date.
www.banksinopac.com
25
Inward remittances
Outward remittances
Export negotiation & collection
Letter of credit & D/P, D/A
Cash & travelers check trade
Bills collection & purchases
Total
20052006Items
63,570
62,670
2,239
2,576
193
119
131,367
51,660
51,032
2,726
2,840
215
124
108,597
In US$ millionsForeign Exchange Business
Trading volume of bills and bonds
Year-end balance of bills and bonds
Year-end balance of listed / OTC stocks
Year-end balance of beneficiary certificates
Short-term bills accredited and underwritten
20052006Items
8,586,823
188,040
3,546
2,427
53,228
6,663,796
143,579
3,197
5,049
55,016
In NT$ millionsSecurities Investment
20052006Items
36,16321,27614,887
2,989
1,271
394-
896442(21)
(1,300)54
47720,0897,320
10,3942,375
1592,216
2952,511
30,13315,59714,536
3,956
(573)
2281
(243)1,795
(91)(581)
14367
19,4093,052
10,6325,7251,1574,568
-4,568
In NT$ millionsSummary of Income and Expenses
Interest revenueInterest expenseNet interestNet revenues other than interest
Commissions and fee revenues, netGains (losses) from financial assets and liabilities at fair value
through profit or lossRealized gains from available-for-sale financial assetsRealized gains from held-to-maturity investmentsIncome (loss) from equity investments - equity methodForeign exchange gain, netImpairment lossesOther provisionGains from unquoted equity instrumentsOther net revenues
Total net revenuesProvision for loan lossesOperating expensesPretax incomeIncome tax expenseIncome before cumulative effect of accounting changesCumulative effect of accounting changes (net of tax benefit)Net income
27
Net interest
Net revenues other than interest
Provision for loan losses
Operating expenses
Pretax income
Cumulative effect of accounting changes (net of tax benefit)
Net income
EPS (in NT$)
2006 2005
14,887
5,202
7,320
10,394
2,375
295
2,511
0.55
14,536
4,873
3,052
10,632
5,725
-
4,568
0.98
2004
11,153
9,536
1,511
10,115
9,063
-
7,566
1.61
2003
10,115
7,821
3,190
8,696
6,050
-
5,399
1.15
2002
9,896
6,988
3,223
8,282
5,379
-
4,406
0.94
In NT$ millionsStatements of Income
Condensed Five-year Financial Statements
Cash and due from banks
Securities purchased, net
Financial assets at fair value through profit or loss
Securities purchased under agreements to resell
Available-for-sale financial assets
Discounts and loans, net
Accounts receivables
Held-to-maturity investments
Long-term investments, net
Equity investments - equity method
Properties, net
Other financial assets, net
Other assets
Total assets
Call loans and due to banks
Deposits and remittances
Financial liabilities at fair value through profit or loss
Securities sold under agreements to repurchase
Bank debentures and bonds payable
Accrued pension cost
Other financial liabilities
Other liabilities
Total liabilitiesEx-dividends
Post-dividends
Capital stockEx-dividends
Post-dividends
Capital surplus
Retained EarningsEx-dividends
Post-dividends
Unrealized gains or losses on financial instruments
Cumulative translation adjustments
Others
Total Stockholder's equity Ex-dividends
Post-dividends
12/31/2006 12/31/2005
123,553
26,705
4,781
170,504
589,416
37,941
2,337
8,878
9,315
4,963
5,265
983,658
77,136
756,464
3,859
14,654
36,710
753
806
29,467
919,849
-
45,852
-
8,195
8,720
-
167
2
873
63,809
-
119,992
38,130
9,730
114,122
607,484
38,842
3,285
8,311
9,476
2,233
5,266
956,871
74,598
719,554
1,031
26,116
41,649
573
538
28,677
892,736
893,896
45,852
45,852
9,710
7,723
6,562
-
37
813
64,135
62,974
12/31/2004
71,963
182,378
-
534,229
43,484
11,232
9,786
30,219
883,291
48,491
646,107
38,543
51,895
469
33,552
819,057
820,532
45,568
46,987
9,489
8,960
6,066
(32)
249
64,234
62,759
12/31/2003
54,953
200,408
-
456,988
35,847
10,068
9,800
9,611
777,675
41,508
614,913
-
34,014
378
27,119
717,932
719,860
45,568
45,568
6,987
6,708
4,781
168
312
59,743
57,816
12/31/2002
46,331
165,950
-
409,644
19,424
9,415
9,718
6,104
666,586
52,676
523,326
-
15,569
379
18,200
610,150
611,722
45,568
45,568
4,830
5,527
3,954
222
289
56,436
54,863
In NT$ millionsBalance Sheets
Items
Items
Financial Report
Note: In accordance with Statement of Financial Accounting Standards Interpretation No. (91) 243 and 244 issued by the Accounting Research and Development Foundation of the Republic of China,the merger of Bank SinoPac and International Bank of Taipei Co., Ltd. is treated as reorganization and should be recorded at the book value of both entities' assets and liabilities. Also inaccordance with Statement of Financial Accounting Standards Interpretation No. (95) 141, the financial statements of Bank SinoPac as of and for the years should be retroactively restatedassuming the assets and liabilities of International Bank of Taipei Co., Ltd. have been included at book value.
Note1: In accordance with Statement of Financial Accounting Standards Interpretation No. (91) 243 and 244 issued by the Accounting Research and Development Foundation of the Republic ofChina, the merger of Bank SinoPac and International Bank of Taipei Co., Ltd. is treated as reorganization and should be recorded at the book value of both entities' assets and liabilities. Alsoin accordance with Statement of Financial Accounting Standards Interpretation No. (95) 141, the financial statements of Bank SinoPac as of and for the year ended December 31, 2005 shouldbe retroactively restated assuming the assets and liabilities of International Bank of Taipei Co., Ltd. have been included at book value. Thus, the net income of Bank SinoPac included the netincome of International Bank of Taipei Co., Ltd.
Note2: EPS for the years were adjusted for the distributon of stock dividends.
28
Financial Report
Auditors' Report - unconsolidated
INDEPENDENT AUDITORS' REPORT
The Board of Directors and StockholdersBank SinoPac
We have audited the accompanying balance sheets of Bank SinoPac as of December 31, 2006 and 2005, and the relatedstatements of income, changes in stockholders' equity and cash flows for the years then ended. These financial statements arethe responsibility of the Bank SinoPac's management. Our responsibility is to express an opinion on these financialstatements based on our audits.
We conducted our audits in accordance with the Rules Governing Auditing and Certification of Financial Statements of theFinancial Industry by Certified Public Accountants and auditing standards generally accepted in the Republic of China.Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BankSinoPac as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended, inconformity with Criteria Governing the Preparation of Financial Reports by Public Banks, requirements of the BusinessAccounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accountingprinciples generally accepted in the Republic of China.
As stated in Notes 1 and 30 to the accompanying financial statements, Bank SinoPac merged with International Bank of TaipeiCo., Ltd., a wholly-owned subsidiary of SinoPac Financial Holding Company Limited, by means of share swap with BankSinoPac as the surviving company. In accordance with Statement of Financial Accounting Standards Interpretation No. (91)243 and 244 issued by the Accounting Research and Development Foundation of the Republic of China, the transaction istreated as reorganization and should be recorded at the book value of both entities' assets and liabilities. Also in accordancewith Statement of Financial Accounting Standards Interpretation No. (95) 141, the financial statements of Bank SinoPacshould be retroactively restated assuming both entities to be merged.
As stated in Note 3 to the accompanying financial statements, effective January 1, 2006, SinPac Bank adopted the Statement ofFinancial Accounting Standards No. 34 "Accounting for Financial Instruments", No. 36 "Disclosure and Presentation ofFinancial Instruments" and other standards amended for harmonising with those two standards.
We have also audited the consolidated financial statements of Bank SinoPac and subsidiaries as of and for the year endedDecember 31, 2006, on which we have issued a modified unqualified opinion thereon.
February 8, 2007
The accompanying financial statements are intended only to present the financial position, results of operations and cashflows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of anyother jurisdictions. The standards, procedures and practices to audit such financial statements are those generally acceptedand applied in the Republic of China.
For the convenience of readers, the auditors' report and the accompanying financial statements have been translated intoEnglish from the original Chinese version prepared and used in the Republic of China. If there is any conflict between theEnglish version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors' report and financial statements shall prevail.
Notice to Readers
20
36
2
( 24)
322
73
( 100)
468
( 75)
( 77)
124
297
30
4
140
8
( 3)
( 16)
( 2)
( 59)
( 86)
( 51)
-
( 45)
www.banksinopac.com
29
Pretax AfterTax
$ 0.58 $ 0.55
$ 0.55 $ 0.52
BANK SINOPAC
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)STATEMENTS OF INCOME
2006
Amount
2005(Restated, Note 30) %
Amount
$ 36,163,154
21,276,482
14,886,672
2,988,582
1,271,309
394,264
-
895,761
442,313
( 21,162)
( 1,300,452)
54,687
477,011
20,088,985
7,320,443
6,223,453
748,998
3,421,579
10,394,030
2,374,512
158,136
2,216,376
294,839
$ 2,511,215
$ 30,132,922
15,596,724
14,536,198
3,955,706
( 573,105)
228,461
1,469
( 243,252)
1,794,933
( 91,467)
( 580,834)
13,782
367,218
19,409,109
3,052,235
5,788,755
772,112
4,070,673
10,631,540
5,725,334
1,157,135
4,568,199
-
$ 4,568,199
INTEREST REVENUE (Notes 2 and 3)
INTEREST EXPENSE
NET INTEREST
NET REVENUES OTHER THAN INTEREST
Commissions and fee revenues, net (Notes 2, 23 and 28)
Gains (losses) from financial assets and liabilities at fair value through
profit or loss (Notes 2 and 3)
Realized gains from available-for-sale financial assets (Note 3)
Realized gains from held-to-maturity investments (Note 3)
Income (loss) from equity investments - equity method (Notes 2 and 12)
Foreign exchange gain, net (Note 2)
Impairment losses (Note 2)
Other provision (Note 2)
Gains from unquoted equity instruments (Notes 2 and 3)
Other net revenues (Note 3)
Total net revenues
PROVISION FOR LOAN LOSSES (Notes 2 and 8)
OPERATING EXPENSES (Note 2)
Personnel expenses (Note 24)
Depreciation and amortization (Note 24)
Others
Total operating expenses
INCOME BEFORE INCOME TAX
INCOME TAX EXPENSE (Notes 2 and 26)
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES
CUMULATIVE EFFECT OF ACCOUNTING CHANGES (NET OF TAX
BENEFIT $8,542) (Note 3)
NET INCOME
EARNINGS PER SHARE (Note 27)
Basic earnings per share
Diluted earnings per share
Note:In accordance with Statement of Financial Accounting Standards Interpretation No. (91) 243 and 244 issued by the Accounting Research and Development Foundation of the Republic of China, the merger of Bank SinoPac andInternational Bank of Taipei Co., Ltd. is treated as reorganization and should be recorded at the book value of both entities’ assets and liabilities. Also in accordance with Statement of Financial Accounting Standards InterpretationNo. (95) 141, the financial statements of Bank SinoPac as of and for the year ended December 31, 2005 should be retroactively restated assuming the assets and liabilities of International Bank of Taipei Co., Ltd. have been included atbook value. Thus, the net income of Bank SinoPac for the years ended 2006 and 2005 included the net income of International Bank of Taipei Co., Ltd. for the years ended 2006 and 2005 amounting to $358,166 and $2,451,035,respectively.
The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 8, 2007)
Pretax AfterTax
$ 1.23 $ 0.98
$ 1.17 $ 0.93
30
Financial Report
BANK SINOPAC
BALANCE SHEETS
2006
Amount
2005(Restated, Note 30) %
Amount
$ 24,378,605
99,173,909
26,705,333
4,781,123
37,940,751
589,416,452
170,503,845
2,337,184
8,877,958
722,259
3,451,024
789,587
4,962,870
4,868,771
4,547,087
2,498,599
38,316
2,082,515
14,035,288
4,759,309
30,867
9,245,112
69,549
9,314,661
5,265,144
$ 983,657,835
$ 19,571,279
100,420,648
38,129,869
9,730,380
38,842,150
607,483,496
114,122,380
3,285,429
8,310,797
848,521
1,301,477
82,677
2,232,675
4,860,005
4,306,576
1,429,232
41,501
3,075,290
13,712,604
4,328,175
-
9,384,429
91,380
9,475,809
5,265,852
$ 956,870,764
25
( 1)
( 30)
( 51)
( 2)
( 3)
49
( 29)
7
( 15)
165
855
122
-
6
75
( 8)
( 32)
2
10
-
( 1)
( 24)
( 2)
-
3
ASSETS
CASH AND CASH EQUIVALENTS (Note 4)
DUE FROM THE CENTRAL BANK AND OTHER BANKS (Notes 5 and 28)
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
(Notes 2, 3, 6, 28 and 32)
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL (Notes 2 and 29)
ACCOUNTS, INTEREST AND OTHER RECEIVABLES, NET (Notes 2, 3, 7, 26 and 28)
DISCOUNTS AND LOANS, NET (Notes 2, 8, 28 and 32)
AVAILABLE-FOR-SALE FINANCIAL ASSETS (Notes 2, 3, 9, 10 and 32)
HELD-TO-MATURITY INVESTMENTS (Notes 2, 3, 11, 28 and 32)
EQUITY INVESTMENTS - EQUITY METHOD (Notes 2, 12 and 32)
OTHER FINANCIAL ASSETS, NET
Unquoted equity instruments (Notes 2, 3, 13 and 32)
Non-active market debt instruments (Notes 2, 3, 13 and 32)
Others (Notes 13 and 32)
Other financial assets, net
PROPERTIES (Notes 2 and 14)
Cost and revaluation increment
Land
Buildings
Computer equipment
Transportation equipment
Office and other equipment
Total cost
Less: Accumulated depreciation
Accumulated impairment
Advances on acquisitions of equipment and construction in progress
Net properties
OTHER ASSETS (Notes 2, 3, 15 and 26)
TOTAL
Note:In accordance with Statement of Financial Accounting Standards Interpretation No. (91) 243 and 244 issued by the Accounting Research and Development Foundation of the Republic of China, the merger ofBank SinoPac and International Bank of Taipei Co., Ltd. is treated as reorganization and should be recorded at the book value of both entities' assets and liabilities. Also in accordance with Statement ofFinancial Accounting Standards Interpretation No. (95) 141, the financial statements of Bank SinoPac as of and for the year ended December 31, 2005 should be retroactively restated assuming the assets andliabilities of International Bank of Taipei Co., Ltd. have been included at book value.
3
274
( 44)
7
5
( 13)
( 2)
50
( 25)
3
-
-
( 16)
-
( 16)
9
-
30
13
( 95)
-
( 30)
-
( 1)
3
www.banksinopac.com
31
DECEMBER 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars, Except Par Value)
2006
Amount
2005(Restated, Note 30)
Amount
$ 77,135,564
3,858,791
14,653,861
27,671,301
756,464,339
30,973,021
5,736,896
805,859
2,548,854
919,848,486
45,851,972
118,226
8,076,524
178
8,194,928
6,280,113
282,977
2,156,490
8,719,580
1,890
166,778
( 155,953)
1,030,154
63,809,349
$ 983,657,835
$ 74,598,145
1,030,641
26,115,884
25,871,483
719,553,966
35,800,000
5,849,080
538,472
3,378,622
892,736,293
45,851,972
118,226
9,591,498
178
9,709,902
5,782,921
282,977
1,657,307
7,723,205
37,066
-
( 221,269)
1,033,595
64,134,471
$ 956,870,764
LIABILITIES AND STOCKHOLDERS' EQUITY
CALL LOANS AND DUE TO BANKS (Note 16)
FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
(Notes 2, 3, 6 and 32)
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Notes 2, 28 and 29)
ACCOUNTS, INTEREST AND OTHER PAYABLES (Notes 2, 17, 26 and 28)
DEPOSITS AND REMITTANCES (Notes 18 and 28)
BANK DEBENTURES (Notes 2 and 19)
BONDS PAYABLE (Notes 2 and 20)
OTHER FINANCIAL LIABILITIES (Notes 2 and 32)
OTHER LIABILITIES (Notes 2, 3, 21, 25 and 32)
Total liabilities
STOCKHOLDERS' EQUITY (Notes 2, 3, 22 and 30)
Capital stock, $10 par value
Capital surplus
Additional paid-in capital
Capital surplus from business combination
Other
Total capital surplus
Retained earnings
Legal reserve
Special reserve
Unappropriated
Total retained earnings
Cumulative translation adjustments
Unrealized gains or losses on financial instruments
Net loss not recognized as pension cost
Unrealized revaluation increment on land
Total stockholders' equity
TOTAL
The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 8, 2007)
%
32
Financial Report
BANK SINOPAC
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Capital Stock
Shares in Thousands Amount (Note 22)
Capital Surplus (Notes 2and 22)Additional Paid-in
CapitalCapital surplus from
Business Combination Others Total
1,944,398
2,612,390
-
-
-
-
141,941
( 113,532)
-
-
-
4,585,197
1,972,807
2,612,390
-
-
-
-
-
-
-
-
-
-
-
4,585,197
$ 19,443,976
26,123,904
-
-
-
-
1,419,416
( 1,135,324)
-
-
-
$ 45,851,972
$ 19,728,068
26,123,904
-
-
-
-
-
-
-
-
-
-
-
$ 45,851,972
$ 125,030
-
-
-
-
-
-
( 6,804)
-
-
-
$ 118,226
$ 118,226
-
-
-
-
-
-
-
-
-
-
-
-
$ 118,226
$ -
7,140,463
-
-
-
-
-
-
2,451,035
-
-
$ 9,591,498
$ -
7,718,358
-
-
-
-
358,166
-
-
-
-
-
-
$ 8,076,524
$ 178
-
-
-
-
-
-
-
-
-
-
$ 178
$ 178
-
-
-
-
-
-
-
-
-
-
-
-
$ 178
$ 125,208
7,140,463
-
-
-
-
-
( 6,804)
2,451,035
-
-
$ 9,709,902
$ 118,404
7,718,358
-
-
-
-
358,166
-
-
-
-
-
-
$ 8,194,928
BALANCE, JANUARY 1, 2005
Retroactive adjustments for merger (Note 30)
Appropriation of 2004 earnings
Legal reserve
Remuneration to directors and supervisors
Bonus to employees
Cash dividends - $0.73 per share
Stock dividends - $0.73 per share
Capital decrease and cancellation resulting from holding shares of
the parent company
Net income for the year ended December 31, 2005
Recovery of unrealized loss on long-term equity investment
Change in translation adjustment on equity investment-equity
method
BALANCE, DECEMBER 31, 2005
BALANCE, JANUARY 31, 2006
Retroactive adjustments for merger (Note 30)
Appropriation of 2005 earnings
Legal reserve
Remuneration to directors and supervisors
Bonus to employees
Cash dividends - $0.57 per share
Net income for the year ended December 31, 2006
Effect of accounting changes
Unrealized gains or losses on available-for-sale financial
assets
Net loss not recognized as pension cost
Change in adjustment on foreign-currency translations
Unappropriated eamings transferred from revaluation incrment on
land
Change in translation adjustment on equity investment-equity
method
BALANCE, DECEMBER 31, 2006
Note:In accordance with Statement of Financial Accounting Standards Interpretation No. (91) 243 and 244 issued by the Accounting Research and Development Foundation of the Republic of China, the merger of Bank SinoPac andInternational Bank of Taipei Co., Ltd. is treated as reorganization and should be recorded at the book value of both entities’ assets and liabilities. Also in accordance with Statement of Financial Accounting StandardsInterpretation No. (95) 141, the financial statements of Bank SinoPac as of and for the year ended December 31, 2005 should be retroactively restated assuming the assets and liabilities of International Bank of Taipei Co., Ltd. havebeen included at book value.
www.banksinopac.com
33
Retained Earnings (Note 22) Cumulative TranslationAdjustments (Note 2)
Unrealized Loss onLong-term Equity
Investment (Note 3)
Unrealized Gains orLosses on FinancialInstrument (Nete 2)
Net loss Not Recognizedas Pension Cost(Notes 2 and 25)
UnrealizedRevaluation
Increment on Land
TotalStockholder' EquityLegal Reserve Special Reserve Unappropriated Total
$ 4,497,477
-
1,285,444
-
-
-
-
-
-
-
-
$ 5,782,921
$ 5,782,921
-
497,192
-
-
-
-
-
-
-
-
-
-
$ 6,280,113
$ 282,977
-
-
-
-
-
-
-
-
-
-
$ 282,977
$ 282,977
-
-
-
-
-
-
-
-
-
-
-
-
$ 282,977
$ 4,180,069
-
( 1,285,444)
( 26,847)
( 28,946)
( 1,419,416)
( 1,419,416)
( 459,857)
2,117,164
-
-
$ 1,657,307
$ 1,657,307
-
( 497,192)
( 32,000)
( 11,601)
( 1,116,514)
2,153,049
-
-
-
-
3,441
-
$ 2,156,490
$ 8,960,523
-
-
( 26,847)
( 28,946)
( 1,419,416)
( 1,419,416)
( 459,857)
2,117,164
-
-
$ 7,723,205
$ 7,723,205
-
-
( 32,000)
( 11,601)
( 1,116,514)
2,153,049
-
-
-
-
3,441
-
$ 8,719,580
$( 31,850)
12,527
-
-
-
-
-
-
-
-
56,389
$ 37,066
$ 24,539
13,386
-
-
-
-
-
-
-
-
( 5,146)
-
( 30,889)
$ 1,890
$( 264,260)
-
-
-
-
-
-
-
-
264,260
-
$ -
$ -
-
-
-
-
-
-
-
-
-
-
-
-
$ -
$ -
-
-
-
-
-
-
-
-
-
-
$ -
$ -
155,072
-
-
-
-
-
( 165)
11,871
-
-
-
-
$ 166,778
$ -
( 221,269)
-
-
-
-
-
-
-
-
-
$( 221,269)
$ -
( 221,269)
-
-
-
-
-
-
-
65,316
-
-
-
$( 155,953)
$ -
1,033,595
-
-
-
-
-
-
-
-
-
-
$ 1,033,595
$ -
1,033,595
-
-
-
-
-
-
-
-
-
( 3,441)
-
$ 1,030,154
$ 28,233,597
34,089,220
-
( 26,847)
( 28,946)
( 1,419,416)
-
( 1,601,985)
4,568,199
264,260
56,389
$ 64,134,471
$ 27,594,216
34,823,046
-
( 32,000)
( 11,601)
( 1,116,514)
2,511,215
( 165)
11,871
65,316
( 5,146)
-
( 30,889)
$ 63,809,349
The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 8, 2007)
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (FOR THE YEARENDED DECEMBER 31, 2005 WAS RESTATED, PLEASE REFER TO Note 30)(In Thousands of New Taiwan Dollars, Except Dividends Per Share)
$ 4,568,199-
769,1923,7501,571
3,632,71191,467
649,078168,025243,252161,917
11,044-
( 11,001)( 1,119)( 2,394,097)( 1,990,101)
198,1233,082,407
( 101,918)
9,082,500
( 44,747,082)9,907,924
808,825( 839,957)( 76,922,073)( 768,082)
78533,578,102
( 530,199)697,536
( 56,250)54,367
( 45,035)293,431
24,534( 240,295)
( 78,783,469)
9,154,198( 12,426,695)
77,581,799-
3,000,000( 67,283)
125,473( 145,867)( 51,747)( 1,419,416)( 2,223,311)
73,527,151
14,6423,840,824
15,730,455$ 19,571,279
$ 14,573,578$ 1,939,896
$ 1,490,917
34
Financial Report
BANK SINOPAC
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (In Thousands of New Taiwan Dollars)STATEMENTS OF CASH FLOWS
20062005
(Restated, Note 30)
$ 2,511,215( 294,839)
743,8573,099
-8,601,918
21,162693,669165,413
( 895,761)202,243
7,307( 10,235)( 974)( 53,280)
10,223,8412,227,488
( 46,464)884,629534,861
25,519,149
1,246,7394,949,2571,385,295
( 2,146,869)10,744,798
( 442,940)10,471
( 56,158,029)( 413,934)
1,377,254( 164)
125,597( 85,613)
101,521( 295,541)( 348,743)
( 39,950,901)
2,537,419( 11,462,023)
36,910,373( 5,000,000)
-( 65,720)
29,234( 675,723)( 43,601)( 1,116,514)( 1,873,140)
19,240,305
( 1,227)4,807,326
19,571,279$ 24,378,605
$ 20,437,302$ 714,521
$ -
CASH FLOWS FROM OPERATING ACTIVITIESNet incomeCumulative effect of accounting changes
Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation and amortizationAmortization on discount of held-to-maturity financial assetsAdvances on acquisitions of equipment expensedProvision for credit and trading lossesAsset impairmentUnrealized losses on financial assets and liabilities at fair value through profit or lossAccrued pension cost(Income) loss from equity investments - equity methodCash dividends from equity investments - equity methodLoss on disposal of properties and idle assets, netGains on sale of unquoted equity instrumentsGains on disposal of collateral assumed, netDeferred income taxDecrease (increase) in held for trading financial assetsIncrease (decrease) in held for trading financial liabilitiesForeign exchange (gains) losses on bond payableDecrease in accounts, interest and other receivablesIncrease (decrease) in accounts, interest and other payables
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIESDecrease (increase) in due from the Central Bank and other banksDecrease in securities purchased under agreements to resellDecrease in financial assets designated at fair value through profit or lossIncrease in non-active market debt instrumentsDecrease (increase) in discounts and loansAcquisition of propertiesProceeds from sale of properties(Increase) decrease in available-for-sale financial assetsAcquisition of held-to-maturity financial assetsProceeds from held-to-maturity financial assets maturedAcquisition of unquoted equity investmentsProceeds from sale of unquoted equity instrumentsAcquisition of collateral assumedProceeds from sale of collateral assumed(Increase) decrease in other financial assetsIncrease in other assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIESIncrease in call loans and due to banksDecrease in securities sold under agreements to repurchaseIncrease in deposits and remittancesRepayment of bank debenturesInsurance of bank debentureDecrease in bonds payableIncrease in other financial liabilitiesDecrease in other liabilitiesRemuneration to directors and supervisors and bonus to employeesCash dividends paidRetroactive adjustments for merger
Net cash provided by financing activities
EFFECTS OF CHANGES IN EXCHANGE RATEINCREASE IN CASH AND CASH EQUIVALENTSCASH AND CASH EQUIVALENTS, BEGINNING OF YEARCASH AND CASH EQUIVALENTS, END OF YEARSUPPLEMENTAL INFORMATION
Interest paidIncome tax paid
NONCASH INVESTING AND FINANCING ACTIVITIES
Capital decrease and cancellation resulting from holding shares of the parent company
Note:In accordance with Statement of Financial Accounting Standards Interpretation No. (91) 243 and 244 issued by the Accounting Research and Development Foundation of the Republic of China, the merger of Bank SinoPac andInternational Bank of Taipei Co., Ltd. is treated as reorganization and should be recorded at the book value of both entities’ assets and liabilities. Also in accordance with Statement of Financial Accounting Standards InterpretationNo. (95) 141, the financial statements of Bank SinoPac as of and for the year ended December 31, 2005 should be retroactively restated assuming the assets and liabilities of International Bank of Taipei Co., Ltd. have been includedat book value.
The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 8, 2007)
1. ORGANIZATION AND OPERATIONS
Bank SinoPac (the “Bank”) obtained government approval to incorporate on August 8, 1991 and started operations on January28, 1992. The Bank engages in commercial banking, trust, and established International Division and Offshore Banking Unit
(OBU) to manage foreign exchange operations as allowed under the Banking Law.
As of December 31, 2006 and 2005, the Bank had a total of 4,740 and 4,991 employees, respectively.
As of December 31, 2006, the Bank’s operating units included Banking, Trust, International Division of the Head Office, anOffshore Banking Unit (OBU), 128 domestic branches, 3 overseas branches, 2 overseas sub-branches and 1 overseasrepresentative office.
The operations of the Bank’s Trust Department consist of: (1) planning, managing and operating of trust business; and (2)custody of non-discretionary trust fund in domestic and overseas securities and mutual funds. These operations are governedby the Banking Law and the Trust Law.
Under the Financial Holding Company Act, the Bank, SinoPac Securities Corporation and SinoPac Securities Co., Ltd. (the“SPS”) established SinoPac Financial Holdings Company Limited (the “SPH”), a financial holding company. The partiesestablished the holding company to maximize the benefit of their combined capital, pool their business channels, fully harnessthe synergy of their diversified business operations and establish one of the most competitive organizations in the Pacific Rim.
Since May 9, 2002, the effective date of the shares swap, the Bank has become an unlisted wholly owned subsidiary of SPH.
On July 21, 2006, the boards of directors of the Bank resolved a merger with International Bank of Taipei Co., Ltd. (IBT) inorder to boost the operating performance through cross selling of pooling business channels, as well as harnessing the synergyof integration of diversified business operations. Under this merger, the Bank acquired the assets and liabilities of IBT througha share swap at ratio of 1.175 shares of the Bank to swap for 1 share of IBT, on which the Bank was the surviving entity andIBT was the company ceasing to exist. The preliminary effective date of the share swap and merger’s recording date wasNovember 13, 2006.
The boards of directors of IBT resolved to transfer credit card business and related assets and liabilities to SinoPac CardCorporation (formerly named AnShin Card Services) on May 8, 2006. The transaction has been approved by the authorities onJune 22, 2006 and the assets have been transferred using the book value of $5,171,080 on August 4, 2006. Related informationregarding net asset value of this transfer please refer to Note 28.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Bank’s financial statements were prepared in conformity with Criteria Governing the Preparation of Financial Reports byPublic Banks, requirement the Business Accounting Law, Guidelines Governing Business Accounting and accounting principlesgenerally accepted in the Republic of China (ROC). In determining the fair value of certain financial instruments, allowancefor credit losses, depreciation, assets impairment, pension, income tax, losses upon suspended lawsuit and provision for losseson guarantees, the Bank needs to make estimates based on judgment and available information. The estimates were usuallymade under uncertain conditions, actual results could differ from those estimates. Since the operating cycle could not bereasonably identified in the banking industry, accounts included in the Bank’s financial statements were not classified as currentor non-current. Nevertheless, accounts were properly categorized according to the nature of each account, and sequenced by
their liquidity. Please refer to Note 32 for maturity analysis of assets and liabilities. Significant accounting policies of theBank are summarized below:
Basis of Financial Statement Preparation
The accompanying financial statements include the accounts of the Head Office, OBU, all branches and the representative office.All interoffice transactions and balances have been eliminated.
Financial Instruments at Fair Value Through Profit or Loss
Financial instruments at fair value through profit or loss consist of any financial asset and liability that is designated on initialrecognition as one to be measured at fair value with fair value changes in profit or loss and financial assets and liabilities which
www.banksinopac.com
35
BANK SINOPAC
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005(FOR THE YEAR ENDED DECEMBER 31, 2005 WAS RESTATED -PLEASE REFER TO Note 30)(In Thousands of New Taiwan Dollars, Unless Otherwise Stated)
should be classified as held for trading. Those instruments are required to be recognized at fair value and to be measured atfair value through profit or loss on the balance sheet date. The Bank uses trade date accounting when recording transaction.
Derivative instruments transaction which do not meet the specified criteria to obtain hedge accounting treatment are classified asfinancial assets or liabilities held for trading when the fair value of a derivative is positive, it is carried as an asset and wherenegative as a liability.
Fair value are determined as follows: (a) listed stocks and GreTai Securities Market (the “GTSM”) stocks - closing prices asof the balance sheet date; (b) beneficiary certificates (open-end fund) - net asset values as of the balance sheet dates; (c) bonds -period-end reference prices published by the GTSM or Bloomberg; and (d) for the financial instruments without active markets,
fair value is determined using valuation techniques.
Any financial asset and any financial liability may be designated as financial instruments at fair value through profit or loss toeliminate measurement anomalies for items that provide a natural offset of each other. Besides, the set of financial assets,financial liabilities or combined by both of them managed according to the Bank’s risk management policies and investmentstrategies will be designated as financial instruments at fair value through profit or loss.
Repurchase and Reverse Repurchase Transactions
Securities purchased under agreement to resell (reverse repurchase) agreements and securities sold under agreements torepurchase are generally treated as collateralized financing transactions. Interest earned on reverse repurchase agreements andinterest incurred on repurchase agreements is recognized as interest income or interest expense over the life of each agreement.
Available-for-sale Financial Assets
Available-for-sale financial assets are carried at fair value. Unrealized gains or losses on available-for-sale financial assets are
reported in equity attribute to the Bank’s shareholders. On disposal of an available-for-sale financial asset, the accumulated,unrealized gain or loss in equity attributable to the Bank’s shareholders is transferred to net profit and loss for the period. TheBank uses trade date accounting when recording available-for-sale portfolio transactions.
Dividend income from equity securities is recognized on ex-dividend dates. Cash dividends received a year after investmentacquisition are recognized as income, otherwise as a reduction of the carrying value of the investments. The effective interestrate method of amortization and accretion is used, the straight line method is used if there is no significant difference.
If an available-for-sale financial asset is determined to be impaired, the accumulative unrealized loss previously recognized inequity attributable to the Bank shareholders is recognized as impairment loss and reported in income statement. For equityinvestments, loss reversal is adjusted to the equity attributable to the Bank shareholders. For debt investments, loss reversal iscredited to current income.
Nonperforming Loans
Under guidelines issued by the Banking Bureau of Financial Supervisory Commission (the Banking Bureau), the balance ofloans and other credits extended by the Bank and the related accrued interest thereon are classified as nonperforming when the
loan is overdue and shall be authorized by a resolution passed by the board of directors.
Nonperforming loans reclassified from loans are classified as discounts and loans; otherwise, are classified as other financialassets.
Allowance for Credit Losses and Provision for Losses on Guarantees
In determining the allowance for credit losses and provision for losses on guarantees, the Bank assesses the collectibility on the
balances of discounts and loans, accounts receivables, interest receivables, other receivables, nonperforming loans, and otherfinancial assets, as well as guarantees and acceptances as of the balance sheet dates.
Pursuant to “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal withNon-performing/Non-accrual Loans” (the “Regulations”) issued by the Banking Bureau, the Bank evaluates credit losses on thebasis of the estimated collectibility. In accordance with the Regulations stated above, the minimum provision for credit lossesshould not be less than the aggregate of 50% of the doubtful credits and 100% of the unrecoverable credits. Since July 2005,the Regulations amended the classification of loan assets, which divided the loan assets into different classes subject to assets
that require special mentioned, assets that are substandard, assets that are doubtful, and assets for which there is loss. Theminimum allowance for credit losses and provision for losses on guarantees for the aforementioned classes should be 2%, 10%,50% and 100% of outstanding credits, respectively. The amendments on the classification of loan assets have no significantimpact on the Bank’s financial statements.
36
Financial Report
Write-offs of loans falling under the Banking Bureau guidelines, upon approval by the board of directors, are offset against therecorded allowance for credit losses.
Held-to-maturity Investments
Held-to-maturity investments are carried at amortized cost, which are valued by interest method, otherwise use the straight linemethod if there is no significant difference. At initial recognition, the costs of the financial assets are valued at fair value of thefinancial assets together with acquire or issue costs. The net profit and loss of the held-to-maturity investments for the periodare reported in to income statement when on disposal, impairment or amortization. The Bank uses trade date accounting whenrecording transaction.
If a held-to-maturity financial asset is determined to be impaired, the impairment loss is recognized and reported in incomestatement. Loss reversal is credited to current income and should not be more than the carrying amount had the impairment notbeen recognized.
Equity Investments - Equity Method
Equity investments are accounted for by the equity method if the Bank has significant influence over the investees. Under thismethod, investments are stated at cost plus (or minus) a proportionate share in net earnings (losses) or changes in net worth of
the investees. Goodwill is not amortized but test annually for impairment since January 1, 2006. Until December 31, 2005,any difference between the acquisition cost and the equity in the investee is amortized over 15 years. Stock dividends resultonly in an increase in number of shares and are not recognized as investment income.
If an investee issues new shares and the Bank does not acquire new shares in proportion to its current equity in the investee, theresulting increase of the Bank’s equity in the investee’s net asset is credited to capital surplus. Any decrease of the Bank’sequity in the investee’s net asset is debited to capital surplus. If capital surplus is not enough for the debiting purpose, theremaining is debited to unappropriated retained earnings.
Financial Asset Securitization
Under the “Regulations for Financial Asset Securitization”, the Bank securitized part of its enterprise loans and entrusted thoseloans to the commissioned organization for the issuance of the related beneficiary certificates. Thus, the Bank derecognizesthe loans and records gain or loss because the control of contractual rights - except for subordinated retained interests for creditenhancement, which were reclassified as available-for-sale financial assets - on the loans has been surrendered and transferred toa special purpose trustee.
The gain or loss on the sale of the loans is the difference between the proceeds and carrying amount of the loans. The previouscarrying amount of the loans should be allocated by applying the ratios of the retained subordinated beneficiary certificates andthe part sold to their fair values on the date of sale. Because quotes are not available for loans and retained subordinatedbeneficiary certificates, the Bank estimates fair value at the present value of expected future cash flows, using management’skey assumptions on credit losses and discount rates commensurate to the risks involved.
Subordinated beneficiary certificates - retained interest of securitization are accounted for as available-for-sale financial assets.Interest revenue is recorded when received. The Bank evaluates retained interests by estimating present value of expected
future cash flows, the difference will be recognized under stockholders’ equity. If the substantive period the impairment isobviously related to the subject occurred after the recognition of impairment, the difference will be reversed and recognized ascurrent income or loss. However, the book value with the reversal amount must not exceed the amortized cost withoutrecognizing the loss.
Properties and Non-operating Assets
Properties and non-operating assets (including cost and revaluation increment)are stated at cost less accumulated depreciation.
Major renewals and betterments are capitalized, while repairs and maintenance are expensed as incurred.
Upon sale or disposal of properties and non-operating assets, their cost, revaluation increment and related accumulateddepreciation are removed from the accounts. Any resulting gain (loss) is credited (charged) to current income.
Depreciation is calculated by the straight-line method on the basis of service lives initially estimated as follows: buildings, 5 to60 years; computer equipment, 3 to 5 years; transportation equipment, 5 years; and office and other equipment, 3 to 15 years.Depreciation on revalued property is computed on the basis of their remaining useful lives at the time of the revaluation. For
assets still in use beyond their original estimated service lives, further depreciation is calculated on the basis of any remainingsalvage value and the estimated additional service lives.
www.banksinopac.com
37
Collaterals Assumed
Collaterals assumed are recorded at cost (included in other assets) and revalued at the lower of cost or net fair value on thebalance sheet dates, and resulting loss is charged to current income.
Other Financial Assets
Non-active market debt instruments are those which do not have a quoted market price in an active market, and whose fair valuecannot be reliably measured. Non-active market debt instruments are carried at amortized cost. The accounting treatment ofnon-active market debt instruments is similar to the one of held-to maturity investments but there’s no prohibition on sale of
non-active market debt instruments.
Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot bereliably measure, are measured at cost. If there is objective evidence that a financial asset is impaired, an impairment loss isrecognized and reversal of impairment loss is prohibited.
Amortization of Bond Issuance Cost
The direct and necessary costs (included in other assets) related to the Euro-convertible bonds issued before December 31, 2005are amortized using the straight-line method and recognized as issuance expenses over the period from its issuance date to theexpiration date of the put option.
Bonds Payable
The Euro-convertible bonds issued before December 31, 2005 were recognized as liabilities by its issued price. Under thebook value method applied for the conversion of Euro-convertible bonds, the carrying value, interest premium and the related
issuance costs were converted into capital stocks in the amount of face value, while the remaining amount were recorded intocapital surplus on the conversion date.
Upon repurchase of the Euro-convertible bonds, the face amount plus the premium and bond issuance expense accrued to thedate of repurchase are removed from the accounts, and any resulting gain or loss is credited or charged to income.
Derivative Financial Instruments
a. Foreign exchange forward
Foreign-currency assets and liabilities arising from forward exchange contracts, which are mainly for accommodatingcustomers’ needs or managing the Bank’s currency positions, are recorded at the contracted forward rates. Gains or lossesarising from the differences between the contracted forward rates and spot rates on settlement are credited or charged tocurrent income. Contracts outstanding on the balance sheet dates are measured at fair value through profit or loss.
b. Forward rate agreements
Forward rate agreements, which are mainly for accommodating customers’ needs or managing the Bank’s interest ratepositions, are recorded by memorandum entries at the contract dates. Gains or losses arising from the differences betweenthe contracted interest rates and actual interest rates upon settlement are credited or charged to current income. On balancesheet dates, outstanding contracts are measured at fair value through profit or loss.
c. Currency swaps
Foreign-currency spot-position assets or liabilities arising from currency swaps, which are mainly for accommodating
customers’ needs or managing the Bank’s currency positions, are recorded at spot rates when the transactions occur; whilecorresponding forward-position assets or liabilities are recorded at the contracted forward rates, with receivables nettedagainst the related payables. The interest part of swap points is amortized during the contract period. On balance sheetdates, outstanding contracts are measured at fair value through profit or loss.
d. Cross-currency swaps
Cross-currency swaps, which are for the purposes of accommodating customers’ needs or managing the Bank’s exposures, are
marked to market on the balance sheet dates. The interest received or paid at each settlement date is recognized as interestincome or expense, which is credited or charged to current income. On balance sheet dates, outstanding contracts aremeasured at fair value through profit or loss.
38
Financial Report
e. Options
Options bought and/or held and options written, which are mainly for accommodating customers’ needs or managing theBank’s currency positions, are recorded as assets and liabilities when the transactions occur. These instruments are markedto market as of the balance sheet dates. The carrying amounts of the instruments, which are recorded either as assets orliabilities, are charged to income when they are not exercised. Gains or losses on the exercise of options are also included incurrent income.
f. Interest rate swaps
Interest rate swaps, which do not involve exchanges of the notional principals, are not recognized as either assets and/orliabilities on the contract dates. The swaps are entered into for accommodating customers’ needs or managing the Bank’sinterest rate positions. The interest received or paid at each settlement date is recognized as interest income or expense.These instruments are marked to market on the balance sheet dates.
g. Asset swaps
Asset swaps involve exchanging the fixed interest of convertible bonds or fixed rate notes for floating interest. In addition,
asset swaps involve exchanging the fixed or floating interest of credit link notes for floating or fixed interest. Thesetransactions are recorded by memorandum entries at the contract dates. Net interest on each settlement is recorded ascurrent income or expense. On balance sheet dates, outstanding contracts are measured at fair value through profit or loss.
h. Futures
Margin deposits paid by the Bank for interest rate futures contracts entered into for trading purpose are recognized as assets.Gains or losses resulting from marking to market and from the settlement of the interest rate futures contracts are classified as
realized or unrealized gains or losses depending on whether the gains or losses had been realized. The gains and losses areincluded in current income.
i. Credit default swaps
Credit default swaps involve taking credit the risk of denominated bonds and notes. Such transactions are recorded bymemorandum entries at the contract dates. The premium received by the Bank for a credit default swap contract on eachsettlement is recorded as current income by the accrual method. On balance sheet dates, outstanding contracts are measured
at fair value through profit or loss.
j. Commodity - linked and equity - linked interest rate swaps and credit -linked swaps (miscellous swap contracts)
Commodity - linked and equity - linked interest rate swaps and credit - linked swaps, which do not involve exchanges ofnotional principals, are recorded by memorandum entries at the contract dates. The gains and losses resulting from theswapped-in and swapped-out are included in current income on the settlement dates. On balance sheet dates, outstandingcontracts are measured at fair value through profit or loss.
Recognition of Interest Revenue and Service Fees
Interest revenue on loans is recorded by the accrual method. No interest revenue is recognized in the accompanying financialstatements on loans and other credits extended by the Bank that are classified as nonperforming loans. The interest revenue onthose loans/credits is recognized upon collection.
Under the Ministry of Finance (MOF) regulations, the interest revenue on credits in which agreements have been reached toextend their maturities is recognized upon collection.
Service fees are recorded as revenue upon receipt or substantial completion of activities involved in the earnings process.
Pension
Pension expense under defined benefit pension plan is determined on the basis of actuarial calculations. Pension under definedcontribution pension plan is expensed during the period when the employees rendered their services.
Income Tax
Inter-period income tax allocation is applied, in which tax effects of deductible temporary differences unused loss carryforwardand unused investment tax credits are recognized as deferred income tax assets, and those of taxable temporary differences are
www.banksinopac.com
39
recognized as deferred income tax liabilities. Valuation allowance is provided for deferred income tax assets that are notcertain to be realized.
Tax credits for acquisitions of equipment or technology, research and development expenditures, personnel trainingexpenditures and acquisition of equity investments are recognized as reduction of current income tax.
Interest income from short-term bills has been taxed separately and recorded as tax expenses. The adjustment of prior year’s
income tax was included in the current income tax.
Income tax (10%) on unappropriated earnings after January 1, 1998 is recorded as income tax in the year when the stockholdersresolve the appropriation of the earnings.
SPH adopted the linked-tax system for income tax filings with its qualified subsidiaries, including the Bank, since 2003. Thedifferent amounts between tax expense and deferred tax liabilities and assets based on consolidation and SPH with its qualifiedsubsidiaries are adjusted on SPH, related amounts are recognized as accounts receivable or accounts payable.
“Income Basic Tax Act” shall come into force on January 1, 2006. The amount of basic income of a profit-seeking enterprise
shall be the sum of the taxable income as calculated in accordance with the Income Tax Act and income exempted due tosuspension of income tax and other relevant laws, and then multiplied by the tax rate (10%) prescribed by the Executive Yuan.The affect of which higher between regular income tax and basic tax had been considered in current income tax.
Asset Impairment
The Bank began applying ROC Statement of Financial Accounting Standards (SFAS) No. 35, “Accounting for AssetImpairment,” on January 1, 2005, which requires that cash-generating units (CGUs) and certain assets, including investments
accounted for by the equity method, properties, goodwill, etc., be subject to an impairment review.
SFAS No. 35 requires the impairment review on long-term investments accounted for by the equity method and properties to bemade on each balance sheet date. If assets or CGUs are deemed impaired, then the Bank must calculate their recoverableamounts. An impairment loss should be recognized whenever the recoverable amount of the assets or the CGU is below the
carrying amount, and this impairment loss either is charged to accumulated impairment or reduces the carrying amount of theassets or CGUs directly. After the recognition of an impairment loss, the depreciation (amortization) should be adjusted infuture periods by the revised asset/CGUs carrying amount (net of accumulated impairment), less its salvage value, on asystematic basis over its remaining service life. If asset impairment loss (excluding goodwill) is reversed, the increase in thecarrying amount resulting from reversal is credited to current income. However, loss reversal should not be more than thecarrying amount (net of depreciation) had the impairment not been recognized. An impairment loss on a revalued asset isrecognized directly against capital surplus from revaluation for the asset to the same asset. A reversal of an impairment loss ona revalued asset is credited directly to capital surplus from revaluation under the heading capital surplus from revaluation.
However, to the extent that an impairment loss on the same revalued asset was previously recognized as profit or loss, a reversalof that impairment loss is also recognized as profit or loss.
Goodwill is tested for impairment annually, or more frequently if events or changes in circumstance indicate goodwillimpairment. Impairment is recorded if the book value exceeds value in use. After the impairment is recognized, the goodwill
should still be amortized periodically. The increase in the recoverable amount of goodwill in the period following therecognition of an impairment loss is likely to be an increase in internally generated goodwill rather than the reversal of theimpairment loss recognized for the acquired goodwill. Thus, reversal of impairment loss on goodwill is prohibited.
Contingencies
A loss is recognized when it is probable that an asset has been impaired or a liability has been incurred and the amount of losscan be reasonably estimated. If the amount of the loss cannot be reasonably estimated or the loss is possible, the related
information is disclosed in the financial statements.
Foreign-currency Translations
Foreign currency transactions are recorded at the rate of exchange on the date of the transaction. At the balance sheet date,monetary assets and liabilities denominated in foreign currencies are translated into New Taiwan dollars equivalents using theclosing exchange rate. Exchange differences arising on the settlement of transactions at rates different from those at the date ofthe transaction, as well as unrealized foreign exchange differences on unsettled foreign currency monetary assets and liabilities,
are recognized in the income statement.
Unrealized exchange differences on non-monetary financial assets (investments in equity instruments) are a component of thechange in their entire fair value. For a non-monetary financial asset classified as held for trading, unrealized exchangedifferences are recognized in the income statement. For non-monetary financial investments, which are classified asavailable-for-sale, unrealized exchange differences are recorded directly in equity until the asset is sold or becomes impaired.
40
Financial Report
Except for the initial investment cost, gains or losses resulting from restatement at period-end of foreign-currency denominatedequity investments accounted for by the equity method are credited or charged to “cumulative translation adjustment” under
stockholders’ equity.
Hedge Accounting
Non-trading derivatives, which are used primarily as a risk management tool for hedging interest rate risk arising on on-balancesheet liabilities, are accounted for on the same basis as the underlying items being hedged.
In order to qualify as a hedge, a derivative must effectively reduce any risk inherent in the hedged item from potential
movements in interest rates, exchange rates and market values. Changes in the fair value of the derivative must be highlycorrelated with changes in the fair value of the underlying hedged item over the life of the hedged contract. At the inception ofthe hedge, there must be formal designation and documentation of the hedging relationship, the Bank’s risk managementobjective and strategy for undertaking the hedge, the hedging instrument, the hedged items, overall risk management objectivesand strategies and how the entity will assess the hedging instrument’s effectiveness.
A fair value hedge that meets all the hedge accounting criteria is accounted for as follows:
a. The gain or loss from re-measuring the hedging instrument at fair value (for a derivative hedging instrument) or the foreigncurrency component of its carrying amount (for a non-derivative hedging instrument) is recognised immediately in profit orloss, and
b. The carrying amount of the hedged item is adjusted through profit or loss for the corresponding gain or loss attributable to thehedged risk.
Reclassifications
Certain 2005 accounts have been reclassified to conform to the 2006 financial statements presentation.
3. ACCOUNTING CHANGES
Effective January 1, 2006, the Bank adopted the Statement of Financial Accounting Standard No. 34 “Accounting for FinancialInstruments”, No. 36 “Disclosure and Presentation of Financial Instruments” and other standards amended for harmonising with
those two standards.
a. The amount of the cumulative effect resulting from the change to new accounting principles
The Bank properly reclassifies the financial assets and financial liabilities when adopting aforementioned new accountingstandards and related amendments to existing standards. The effects of the financial assets and liabilities at fair valuethrough profit or loss and derivative of fair value hedge are included in cumulative effect of accounting changes. The effectsof the fair value change of available-for-sale financial assets are included in stockholders’ equity adjustments.
The cumulative effect of accounting changes are as follows:
Cumulative Effect
of Accounting
Changes, After Tax
Stockholders’
Equity
Adjustments,
After Tax
Financial assets at fair value through profit or loss $ 745,447 $ -Available-for-sale financial assets - 348,270
Financial liabilities at fair value through profit or loss (450,608 ) -
$ 294,839 $ 348,270
b. Reclassification
Under an explanation issued by ARDF of ROC, when the Bank adopts Statement of Financial Accounting Standard No. 34effective on January 1, 2006, the Bank needs to reclassify the comparative financial statements for the year ended 2005
instead of restating. The Bank shall state the different valuation method in the notes to the financial statements.
www.banksinopac.com
41
The different valuation methods of financial instruments the Bank applies are summarized as follows:1) Securities purchased
Securities which are acquired principally for the purpose of sale in the near term are stated at the lower of cost ormarket value. Market prices are determined as follows: (a) listed stocks - average daily closing prices for the lastmonth of the accounting period and; (b) GTSM stocks - average daily closing prices for the last month of theaccounting period, published by GTSM.
2) Long-term investments
Long-term equity investments are accounted for by the cost method if the Bank does not have significant influenceover the investees. For listed and GTSM stocks accounted for by the cost method, when the aggregate market valueis lower than the total carrying amount, an allowance for decline in market value is provided and the unrealized loss ischarged against stockholders’ equity. If a decline in the value of an unlisted stock investment is considered aspermanent loss, the decline is charged to current income.
3) Foreign exchange forward
Foreign-currency assets and liabilities arising from forward exchange contracts, which are mainly for accommodatingcustomers’ needs or managing the Bank’s currency positions, are recorded at the contracted forward rates. Gains orlosses arising from the differences between the contracted forward rates and spot rates on settlement are credited orcharged to current income. For contracts outstanding on the balance sheet dates, the gains or losses arising from thedifferences between the contracted forward rates and the forward rates available for the remaining maturities of thecontracts are credited or charged to current income. Receivables arising from forward exchange contracts are offsetagainst related payables on the balance sheet dates.
4) Forward rate agreements
Forward rate agreements, which are mainly for accommodating customers’ needs or managing the Bank’s interest ratepositions, are recorded by memorandum entries at the contract dates. Gains or losses arising from the differencesbetween the contracted interest rates and actual interest rates upon settlement or on the balance sheet dates are creditedor charged to current income.
5) Cross-currency swaps
Cross-currency swaps, which are for the purposes of accommodating customers’ needs or managing the Bank’sexposures, are marked to market on the balance sheet dates. The interest received or paid at each settlement date orbalance sheet date is recognized as interest income or expense, which is credited or charged to current income.
6) Asset swaps
Asset swaps involve exchanging the fixed interest of convertible bonds or fixed rate notes for floating interest. Inaddition, asset swaps involve exchanging the fixed or floating interest of credit link notes for floating or fixed interest.
These transactions are recorded by memorandum entries at the contract dates. Asset swaps are entered into forhedging purposes; they are used to hedge interest rate exposure in convertible bonds, fixed rate notes and credit linknotes denominated in foreign currency. Net interest on each settlement or balance sheet date is recorded as anadjustment to interest income or expense associated with the bonds or notes being hedged.
Certain 2005 accounts have been reclassified to conform 2006 financial statements presentation and new accountingstandards’ requirement:
December 31, 2005
Before
Reclassification
After
Reclassification
Balance sheets
Securities purchased $ 153,063,113 $ -Accounts, interest and other receivables, net 206,746 -
Long-term equity investments - cost method 848,521 -Other long-term investments 1,526,106 -
42
Financial Report
December 31, 2005
Before
Reclassification
After
Reclassification
Other assets $ 2,043,190 $ -Other liabilities - others 1,030,641 -Financial assets at fair value through profit or loss - 38,129,869Available-for -sale financial assets - 114,122,380Held-to-maturity investments - 3,285,429Non-active market debt instruments - 1,301,477
Unquoted equity instruments - 848,521Financial liabilities at fair value through profit or loss - 1,030,641
$ 158,718,317 $ 158,718,317
For the Year Ended
December 31, 2005
Before
Reclassification
After
Reclassification
Income statement
Interest revenue $ 28,523,697 $ 30,132,922Loss on derivative financial instruments transactions (949,601 ) -Income from securities, net 2,207,324 -Operating revenue other 284,752 -
Loss from financial assets and liabilities at fair value through profit or loss - (573,105 )
Realized gain from available-for-sale financial assets $ - $ 228,461Realized gain from held-to-maturity investments - 1,469Realized loss from unquoted equity instruments - 13,782Other net revenues - 262,643
$ 30,066,172 $ 30,066,172
4. CASH AND CASH EQUIVALENTS
December 31
2006 2005
Due from other banks $ 10,129,629 $ 6,662,848Notes and checks in clearing 8,331,708 7,384,032
Cash on hand 5,917,268 5,524,399
$ 24,378,605 $ 19,571,279
5. DUE FROM THE CENTRAL BANK AND OTHER BANKS
December 31
2006 2005
Call loans to banks $ 71,968,009 $ 70,455,445Due from the Central Bank 27,205,900 29,965,203
$ 99,173,909 $ 100,420,648
Due from the Central Bank consists mainly of New Taiwan Dollar (NTD) and foreign currency deposit reserves.
Under a directive issued by the Central Bank of the ROC, NTD-denominated deposit reserves are determined monthly atprescribed rates on average balances of customers’ NTD-denominated deposits. These reserves included $17,271,070 and$16,602,037 as of December 31, 2006 and 2005, respectively, which are subject to withdrawal restrictions.
www.banksinopac.com
43
In addition, the foreign-currency deposit reserves are determined at prescribed rates on balances of additional foreign-currencydeposits. These reserve may be withdrawn momentarily and are noninterest earning. As of December 31, 2006 and 2005, the
balances of foreign-currency deposit reserves were $101,048 and $341,649, respectively.
6. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
December 31
2006 2005
Held for trading financial assets
Corporate bonds $ 12,064,295 $ 8,959,991Bank debentures 3,297,290 2,839,943Beneficiary certificates 2,427,170 5,049,216Forward contracts 2,204,403 390,673Listed stock 1,303,206 984,880Premium paid on option contracts 1,226,804 1,052,941Interest rate swap 1,207,473 207,198Assets based securities 733,974 472,241
Government bonds 717,106 355,889Commercial papers 200,834 -Structured instruments 221 146,188Negotiable certificates of deposit - 15,000,000Others 45,795 20,609
25,428,571 35,479,769
Financial assets designated at fair value through profit or loss
Corporate bonds 1,112,788 350,600Credit linked notes 163,974 2,299,500
1,276,762 2,650,100
$ 26,705,333 $ 38,129,869
The Bank held 116,565 shares of SPH with carrying amounts of $1,490,918. Those shares of SPH held by the Bank did notabide with the Financial Holding Company Act, which requires those shares to be (i) reissued to the employees of SPH or SPH’s
subsidiaries within three years, (ii) used for equity conversion, or (iii) sold on a stock exchange or GTSM. In the event thatshares are not reissued or sold, such shares should be cancelled which causes the SPH’s capital stock to decrease, and thealteration registration should be completed. According to the explanations of ARDF of ROC, if the Bank does not receive anyproceeds from SPH for those cancelled shares, the Bank needs to decrease its capital based on the capital decrease ratio whileSPH follows the regulation to cancel and decrease its capital stock. The Bank got approval from the authorities for thecancellation of capital stock, resulting in decreasing of capital stock of the Bank by $1,135,324. The date for capitaldecreasing is on August 26, 2005.
In 2005, the Bank reclassified the listed and GTSM stocks accounted for by the cost method as securities purchased (reclassified
as held for trading financial assets). The loss of $270,125 has been recognized when reclassified since the cost was lower thanthe market value. The market value has been recorded for the cost.
Held-for-trading financial assets as of December 31, 2006 and 2005 with a total face amount of $2,532,783 and $3,282,089 weresold under agreement to repurchase.
December 31
2006 2005
Held for trading financial liabilitiesBonds short sales $ 1,192,778 $ -Interest rate swap contracts 938,870 29,722Forward contracts 847,623 -Premiums received on option contracts 777,978 995,339Cross-currency swap contracts 16,451 -Structured instruments 1,842 3,500Others 83,249 2,080
$ 3,858,791 $ 1,030,641
44
Financial Report
The Bank engages in derivative transactions mainly for accommodating customers’ needs and managing its exposure positions.
The Bank’s strategy is to hedge most of the market risk exposures using hedging instruments with market value changes thathave a highly negative correlation with the changes in the market of the exposures being hedged.
The contract amounts (or notional amounts) of outstanding derivative transactions for accommodating customers’ needs andmanaging its exposure positions were as follows:
December 31
2006 2005
Currency swap contracts $ 285,443,510 $ 216,122,195Interest rate swap contracts 238,863,090 175,399,936Options
Long position 83,883,944 57,689,571Short position 70,745,616 60,671,218
Forward contractsBuy 65,394,539 60,831,196
Sell 66,728,520 51,676,754Cross-currency swap contracts 21,699,230 24,128,935Assets swap contracts 2,797,862 3,606,536Credit default swap contracts
Buy 5,400,000 4,300,000Sell 1,588,940 359,059
Commodity linked interest rate swap contracts 101,700 115,632Equity linked swap contracts 401,257 -
FuturesBuy 23,851,308 367,462Sell 19,557,600 1,169,066
The gains on held for trading financial assets and liabilities for the year ended December 31, 2006 were $1,259,352 and thelosses for the year ended December 31, 2005 were $573,105. The gains on financial assets designated at fair value throughprofit or loss for the year ended December 31, 2006 were $11,957.
7. ACCOUNTS, INTEREST AND OTHER RECEIVABLES, NET
December 31
2006 2005
Accounts receivable - factoring $ 23,747,954 $ 24,360,978Acceptances 4,834,523 3,532,473Credit card receivables - 6,980,290
Receivable from related parties 4,508,123 199,659Interest receivable 3,649,397 2,810,085Accounts receivable 935,966 469,822Tax refundable 42,521 23,036Others 766,416 1,283,559
38,484,900 39,659,902Less - allowance for credit losses 544,149 817,752
$ 37,940,751 $ 38,842,150
As of December 31, 2006, receivables from related parties included $4,136,864 and $371,259, respectively representingreceivables of the transfer of credit card business to SinoPac Card Corporation and the receivable from link-tax system. As ofDecember 31, 2005, receivables from related parties included $102,577 and $97,082, respectively representing dividendsreceivable and receivable from linked-tax system.
www.banksinopac.com
45
8. DISCOUNTS AND LOANS
December 31
2006 2005
Import and export negotiations $ 2,346,707 $ 2,812,130Overdrafts 1,268,904 1,318,656Accounts receivable - financing 4,728,128 3,223,939Short-term loans 146,554,296 149,647,541Medium-term loans 136,932,135 168,421,160
Long-term loans 294,131,167 278,562,797Nonperforming loans transferred from loans 9,160,479 7,444,571
595,121,816 611,430,794Less - allowance for credit losses 5,705,364 3,947,298
$ 589,416,452 $ 607,483,496
As of December 31, 2006 and 2005, the balances of nonaccrual interest loans were $9,486,837 and $7,634,709, respectively.
The unrecognized interest revenues on nonaccrual interest loans amounted to $404,189 and $250,957 for the years endedDecember 31, 2006 and 2005, respectively.
For the years ended December 31, 2006 and 2005, the Bank had not written off credits for which legal proceedings had not beeninitiated.
The details of and changes in allowance for credit losses of loans, discounts and loans for the years ended December 31, 2006and 2005, respectively, were summarized below:
For the Year Ended December 31, 2006
Specific General
Reserve Reserve Total
Balance, January 1 $ 2,036,800 $ 1,910,498 $ 3,947,298Provision 6,554,121 766,322 7,320,443
Write-off (5,675,938 ) - (5,675,938 )Recovery of written-off credits 97,157 - 97,157Reclassifications 905,140 (888,202 ) 16,938Result from change of foreign exchange rate (534 ) - (534 )
Balance, December 31 $ 3,916,746 $ 1,788,618 $ 5,705,364
For the Year Ended December 31, 2005
Specific General
Reserve Reserve Total
Balance, January 1 $ 947,919 $ 1,362,194 $ 2,310,113Provision 2,643,671 408,564 3,052,235Write-off (1,589,113 ) - (1,589,113 )Recovery of written-off credits 189,870 - 189,870Reclassifications (150,257 ) 139,740 (10,517 )
Result from change of foreign exchange rate 1,802 - 1,802Others (7,092 ) - (7,092 )
Balance, December 31 $ 2,036,800 $ 1,910,498 $ 3,947,298
As of December 31, 2006 and 2005, allowances for credit losses and provisions for losses on guarantees of the Bank were$6,355,130 and $4,794,417, respectively.
46
Financial Report
9. AVAILABLE-FOR-SALE FINANCIAL ASSETS
December 31
2006 2005
Negotiable certificate of deposit $ 154,933,803 $ 89,800,000Government bonds 8,565,927 10,194,192Bank debentures 2,826,077 -Listed stock 2,243,293 2,212,296Subordinated beneficiary certificates of securitization 1,014,257 1,014,300
Corporate bonds 800,797 -Commercial papers 119,691 6,931,670Acceptances - 7,818Treasury bills - 3,962,104
$ 170,503,845 $ 114,122,380
As of December 31, 2006, the Bank held 120,031 thousand shares of SPH, with carrying amount of $1,968,508 and market
value of $2,094,541, based on the closing prices as of December 31, 2006. The different amount of $126,033 was recorded asunrealized gain (loss) of financial instruments under stockholders’ equity.
As of December 31, 2005, the Bank held 120,031 thousand shares of SPH, with carrying amount of $2,292,706 and marketvalue of $1,968,508, based on the average daily closing prices for the last month of the year ended December 31, 2005. Theestimated decline of market value for all the stocks held was $324,198.
The available-for-sale financial assets amounting to $660,462 and $758,694 as of December 31, 2006 and 2005 had been
provided to GTSM as bond payment settlement reserves for electronic bond trading system and to court for provisional seizure.
To comply with the Central Bank’s clearing system of RTGS, face amount of negotiable certificates of deposit aggregating$15,050,000 and $20,560,200 had been provided as collaterals for the daytime overdraft as of December 31, 2006 and 2005,respectively, with pledged amounts that can be adjusted momentarily.
The available-for-sale financial assets amounting $11,782,667 and $22,341,045 as of December 31, 2006 and 2005, respectively,had been sold under agreements to repurchase.
10. SECURITIZATION
a. Characteristic, gain (loss) recognized and key economic assumptions used in measuring retained interests
In August 2004, the Bank sold part of its enterprise loans under securitization transactions. The Bank entrusted theseloans to Fuhwa Bank for issuing beneficiary certificates. The terms and key economic assumptions used in measuringretained interests were as follows:
Enterprise
Loans under
Terms Securitization
Date of issuance August 3, 2004Carrying amount of enterprise loans $ 4,900,000Gain (loss) on securitization -
December 31, 2006
Senior Subordinated
First Second Third Fourth Fifth
Series of Certificates Tranche Tranche Tranche Tranche Tranche
Principal amount $ 1,188,100 $ 534,100 $ 441,000 $ 122,500 $ 1,014,300
Annual interest Floatinginterest rateplus 0.4%(Note)
Floatinginterest rateplus 0.6%(Note)
Floatinginterest rateplus 1.0%(Note)
Floatinginterest rateplus 1.2%(Note)
-
www.banksinopac.com
47
Senior Subordinated
First Second Third Fourth Fifth
Series of Certificates Tranche Tranche Tranche Tranche Tranche
Key assumptions used inmeasuring retainedinterests
Maturity 3
Expected credit losses(annual rate)
-
Discounted rate forresidual cash flows
1.748%
December 31, 2005Principal amount $ 1,188,100 $ 534,100 $ 441,000 $ 122,500 $ 1,014,300Annual interest Floating
interest rateplus 0.4%(Note)
Floating
interest rateplus 0.6%(Note)
Floating
interest rateplus 1.0%(Note)
Floating
interest rateplus 1.2%(Note)
-
Key assumptions used inmeasuring retainedinterests
Maturity 3
Expected credit losses(annual rate)
-
Discounted rate forresidual cash flows
1.433%
Note: Floating rate is the average rate of the 90-day short-term bills in the secondary market of Telerate Information Inc., at11:00 a.m. of Taipei time two working days prior to the first day of interest period of financial assets (shown on page6165).
The investors of the subordinated certificates have a right over any remaining interest paid after fixed interest has been paidto the holders of the senior certificates in accordance with the principal amount. Any prepayment of principal shall bepaid to the tranche in the order mentioned above. When the debtors fail to pay on schedule, the investors and FuhwaBank have no recourse to the other assets of the Bank. The Bank has a right over the subordinated certificates. Thevalue of the subordinated certificates is subject to credit and interest rate risks on the transferred financial assets.
b. Sensitivity analysis
As of December 31, 2006 and 2005, key economic assumptions and the sensitivity of the current fair value of residual cashflows to immediate 10 percent and 20 percent adverse changes in these assumptions were as follows:
Enterprise Loans
December 31
2006 2005
Carrying amount of retained interest $ 1,014,257 $ 1,014,300
Weighted-average life (in years) 3 3Discount rate of residual cash flows (annual rate) 1.748% 1.433%Impact on fair value of 10% adverse change (125 ) (71 )Impact on fair value of 20% adverse change (560 ) (213 )
c. Due to the loans for securitized having no actual credit losses, the rate of expected static group loss equals to that ofexpected credit loss. The expected credit losses for the year ended December 31, 2006 are $43.
d. Cash flows
For the year ended December 31, 2005, the prepayments of principal before due date resulted in the cash inflow amountedto $1,600,000.
48
Financial Report
11. HELD-TO-MATURITY FINANCIAL ASSETS
December 31
2006 2005
Bank debentures $ 712,493 $ 1,577,312Corporate bonds 494,053 882,028Floating rate notes 488,940 492,750Government bonds 264,218 253,339Beneficiary certificates 214,500 80,000
Negotiable certificate of deposit 162,980 -
$ 2,337,184 $ 3,285,429
To comply with Hong Kong branch’s clearing system of real-time gross settlement, government bonds included inheld-to-maturity financial assets had been provided as collaterals as of December 31, 2006 and 2005.
The held-to-maturity financial assets as of December 31, 2006 and 2005 amounting $299,622 and $492,750, respectively, had
been sold under agreement to repurchase.
12. EQUITY INVESTMENTS - EQUITY METHOD
December 31
2006 2005
SinoPac Bancorp $ 6,331,377 $ 5,871,192SinoPac Leasing Corporation 1,164,525 1,106,264SinoPac Capital Limited (H.K.) 1,014,666 898,128Grand Cathay Securities Investment Trust Co. 184,217 168,977SinoPac Life Insurance Agent Co., Ltd. 168,329 249,594SinoPac Property Insurance Agent Co., Ltd. 12,533 14,387SinoPac Financial Consulting Co., Ltd. 2,311 2,255
$ 8,877,958 $ 8,310,797
Income (loss) from equity investments for the years ended December 31, 2006 and 2005, respectively, were summarized asfollows:
For the Years Ended
December 31
2006 2005
Equity method
SinoPac Bancorp $ 559,820 $ 468,658SinoPac Leasing Corporation 62,396 (798,375 )SinoPac Capital Limited (H.K.) 139,437 (111,922 )Grand Cathay Securities Investment Trust Co. 14,928 (27,961 )SinoPac Life Insurance Agent Co., Ltd. 112,114 216,359SinoPac Property Insurance Agent Co., Ltd. 7,010 9,911SinoPac Financial Consulting Co., Ltd. 56 78
$ 895,761 $ (243,252 )
The net income of SinoPac Bancorp for the year ended December 31, 2005 amounted to $547,638 was translated into NTD atthe average exchange rate for the respective periods. The difference between the translated net income of SinoPac Bancorpand the one recognized by the Bank was generated from some different accounting treatments between ROC GAAP and USGAAP. Upon the adoption of accounting standards effective on January 1, 2006, those different accounting treatments havebeen eliminated.
In order to reorganize the operations of life and property insurance agent, IBT Life Insurance Agent Co., Ltd. (“IBT LifeInsurance Agent”) and IBT Property Insurance Agent Co., Ltd. (“IBT Property Insurance Agent”), the investee companies ofIBT under the equity method, merged with SinoPac Life Insurance Agent Co., Ltd. (“SinoPac Life Insurance Agent”) and
www.banksinopac.com
49
SinoPac Property Insurance Agent Co., Ltd. (“SinoPac Property Insurance Agent”), respectively, with IBT Life Insurance Agentand IBT Property Insurance Agent as surviving entities. The merged entities are renamed, as SinoPac Life Insurance Agent
and SinoPac Property Insurance Agent, respectively. The effective date is on November 13, 2006.
SinoPac Financial Consulting Co., Ltd., the subsidiary of the Bank, was not included in the consolidated entities since it isconsidered immaterial. Grand Cathay Securities Investment Trust Co., Ltd. was not included in the consolidated financialstatements since the Bank does not have significant influence.
13. OTHER FINANCIAL ASSETS
December 31
2006 2005
Unquoted equity instrumentsUnlisted equity investments $ 722,259 $ 848,521
Non-active market debt instrumentsFloating rate notes 1,173,151 544,817Assets based securities 674,150 592,360
Corporate bonds 951,803 -Bank debenture 651,920 164,300
Other financial assetsHedged derivative financial instruments 411,174 -Nonperforming receivables transferred from other than loans 101,568 15,173Excess margin 127,936 50,082Short-term advancement 145,685 16,477Bills purchased 3,224 945
$ 4,962,870 $ 2,232,675
Impairment loss of unquoted equity instruments recognized by the Bank amounted to $59,417 for the year ended December 31,2005, which are summarized as follows:
Investees Amount
Prudence Venture Investment Corp. $ 14,400Z-Com, Inc. 5,229Taiwan Leader Advanced Technology Co., Ltd. 5,788Mondex Taiwan Corp. 34,000
$ 59,417
Investments in equity and debt instruments that do not have a quoted market price in an active market, and whose fair valuecannot be reliably measured are measured at cost.
Non-active market debt instrument as of December 31, 2006 with a total face amount of $38,789 were sold under agreement torepurchase.
14. PROPERTIES
December 31
2006 2005
Cost and appreciation $ 14,035,288 $ 13,712,604Accumulated depreciation
Buildings 1,495,461 1,378,192Computer equipment 1,818,048 1,030,134Transportation equipment 32,568 33,875Office and other equipment 1,413,232 1,885,974
4,759,309 4,328,175
50
Financial Report
December 31
2006 2005
Accumulated impairmentComputer equipment $ 9,888 $ -Office and other equipment 20,979 -
30,867 -Advances on acquisitions of equipment and construction in progress 69,549 91,380
$ 9,314,661 $ 9,475,809
Under government regulations, the Bank revalued its properties, in the following years: Land in 1961, 1964, 1967 and 2001;and other properties in 1961.
The Bank transferred the land value increment tax reserve amounted to $423,254 to capital surplus - revaluation increment onland because of a tax law amendment, effective February 1, 2005.
The Bank merged with IBT on November 13, 2006. Under explanations (91) 128, 243 and 244 issued by ARDF of ROC, themerger should be treated as a reorganization because the Bank and IBT are both 100% owned subsidiaries of SPH. The Bank
should recognize all the assets and liabilities of IBT at book value (if the impairment occurs, the impairment loss should berecognized). Under the Financial Institutions Merger Act and explanation (94) 349 issued by the ARDF of ROC, the Bank didnot book the land value increment tax reserve amounted to $555,910 since the land was not revalued when both banks merged.
15. OTHER ASSETS
December 31
2006 2005
Rental properties, net $ 1,062,751 $ 1,103,857
Guarantee deposits 978,909 402,648
Collateral assumed, net of accumulated impairment $35,339 and $35,256as of December 31, 2006 and 2005, respectively 624,604 814,989
Idle assets, net 621,023 679,888
Deferred tax asset 440,869 209,691
Prepayment 324,001 1,194,635
Temporary payment 298,854 50,137
Deferred pension cost 207,052 229,237
Others 707,081 580,770
$ 5,265,144 $ 5,625,852
16. CALL LOANS AND DUE TO BANKS
December 31
2006 2005
Call loans $ 66,136,768 $ 59,513,809Redeposits from the directorate general of postal remittance 10,701,007 14,706,199Due to banks 70,097 79,713Due to the Central Bank 53,583 44,772
Overdrafts of bank 174,109 253,652
$ 77,135,564 $ 74,598,145
17. ACCOUNTS, INTEREST AND OTHER PAYABLES
December 31
2006 2005
Notes and checks in clearing $ 8,331,708 $ 7,384,032Accounts payable - factoring 7,480,601 9,174,820
www.banksinopac.com
51
December 31
2006 2005
Acceptance payable $ 4,834,523 $ 3,552,334Interest payable 3,532,805 2,693,612Accrued expenses 1,533,938 1,359,325Tax payable 901,488 623,619Accounts payable 255,296 619,736Temporary payments 159,877 223,388
Payable from related party for allocation of linked - tax system - 22,284Others 641,065 218,333
$ 27,671,301 $ 25,871,483
18. DEPOSITS AND REMITTANCES
December 31
2006 2005
Checking $ 13,739,160 $ 15,230,886Demand 104,212,898 108,145,864Savings - demand 167,214,938 160,013,293Time 231,011,940 200,510,443Negotiable certificates of deposit 36,966,600 48,237,100
Savings - time 202,200,531 186,789,607Inward remittances 948,206 385,269Outward remittances 170,066 241,504
$ 756,464,339 $ 719,553,966
19. BANK DEBENTURES
December 31
2006 2005 Maturity Date Terms
First dominant bankdebenture issued in 2001
$ - $ 5,000,000 2001.12.20-2006.12.20Principal is repayable on
maturity date.
Fixed interest rate of 3.08%.Interest is paid annually.
First subordinated bankdebenture issued in 2002
2,000,000 2,000,000 2002.12.23-2008.03.23Principal is repayable on
maturity date.
Floating interest rate except for thefirst two years fixed at 2.15%.
Interest is paid semiannually.First dominant bank
debenture issued in 20031,000,007 1,000,000 2003.02.14-2008.02.14
Principal is repayable onmaturity date.
3.65% minus 6-month LIBOR.Interest is paid semiannually.
Second dominant bankdebenture issued in 2003
500,125 500,000 2003.03.19-2008.09.19Principal is repayable on
maturity date.
3.48% minus 6-month LIBOR.Interest is paid semiannually.
Third dominant bank
debenture issued in 2003
1,502,819 1,500,000 2003.05.09-2008.11.09
Principal is repayable onmaturity date.
4.15% minus 6-month LIBOR
except for the first year fixed at2.50%. Interest is paidsemiannually.
Fourth dominant bankdebenture issued in 2003
414,539 400,000 2003.05.09-2008.11.09Principal is repayable on
maturity date.
2% plus 180-day-NTD CP rate insecondary market and minus6-month LIBOR. Interest is paidsemiannually.
First subordinated bank
debenture issued in 2003
2,500,000 2,500,000 2003.06.18-2008.12.18
Principal is repayable onmaturity date.
180-day CP rate in secondary market
plus 0.3%. Interest is paidsemiannually.
52
Financial Report
December 31
2006 2005 Maturity Date Terms
Fifth dominant bankdebenture issued in 2003
$ 998,197 $ 1,000,000 2003.08.11-2010.08.11Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually
Sixth dominant bankdebenture issued in 2003
696,856 700,000 2003.08.20-2009.02.20Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually
Seventh dominant bankdebenture issued in 2003
797,582 800,000 2003.09.16-2008.09.16Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually
Eighth dominant bankdebenture issued in 2003
498,217 500,000 2003.09.16-2008.09.16Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually
Ninth dominant bankdebenture issued in 2003
299,360 300,000 2003.09.22-2008.09.22Principal is repayable on
maturity date.
Coupon rate at 2.55% for the firstyear of the issuance and 5% minus
index rate for the years thereon.Tenth dominant bank
debenture issued in 2003998,998 1,000,000 2003.11.05-2008.11.05
Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually.
Eleventh dominant bankdebenture issued in 2003
996,531 1,000,000 2003.11.14-2008.11.14Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Twelfth dominant bank
debenture issued in 2003
500,157 500,000 2003.11.21-2008.11.21
Principal is repayable onmaturity date.
Floating rate. Interest is paid
semiannually.
Thirteenth dominant bankdebenture issued in 2003
498,608 500,000 2003.11.28-2008.11.28Principal is repayable on
maturity date.
Floating rate except for the first yearfixed at 4%. Interest is paidsemiannually.
Fourteenth dominant bankdebenture issued in 2003
2,207,951 2,200,000 2003.12.02-2009.06.02Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Second subordinated bankdebentures issued in 2003
3,600,000 3,600,000 2004.03.18-2009.09.18Principal is repayable on
maturity date.
Fixed interest rate of 2.3%, interestis paid semiannually.
First dominant bankdebentures issued in 2004
524,187 500,000 2004.04.26-2009.10.26Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually with simple interestbased on actual days.
Second dominant bankdebentures issued in 2004
300,151 300,000 2004.04.28-2009.10.28Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Third dominant bankdebentures issued in 2004
500,597 500,000 2004.04.29-2009.04.29Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually with simple interestbased on actual days.
Fourth dominant bankdebentures issued in 2004
200,089 200,000 2004.05.14-2009.05.14Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Fifth dominant bankdebentures issued in 2004
301,363 300,000 2004.05.17-2009.05.17Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Sixth dominant bankdebentures issued in 2004
502,272 500,000 2004.05.17-2009.05.17Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Seventh dominant bankdebentures issued in 2004
199,901 200,000 2004.05.21-2009.05.21Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Eighth dominant bank
debentures issued in 2004
515,814 500,000 2004.05.21-2011.05.21
Principal is repayable onmaturity date.
Floating rate. Interest is paid
semiannually with simple interestbased on actual days.
www.banksinopac.com
53
December 31
2006 2005 Maturity Date Terms
Ninth dominant bankdebentures issued in 2004
$ 301,332 $ 300,000 2004.06.03-2009.06.03Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Tenth dominant bankdebentures issued in 2004
507,987 500,000 2004.06.07-2009.06.07Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually with simple interestbased on actual days.
Eleventh dominant bank
debentures issued in 2004
202,344 200,000 2004.06.15-2009.06.15
Principal is repayable onmaturity date.
Floating rate. Interest is paid
semiannually with simple interestbased on actual days.
Twelfth dominant bankdebentures issued in 2004
514,608 500,000 2004.06.15-2010.06.15Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually with simple interestbased on actual days.
Thirteenth dominant bankdebentures issued in 2004
303,676 300,000 2004.06.30-2009.06.30Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Fourteenth dominant bankdebentures issued in 2004
514,522 500,000 2004.07.09-2010.07.09Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Fifteenth dominant bankdebentures issued in 2004
527,443 500,000 2004.07.13-2011.07.13Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
First subordinated bankdebentures issued in 2004
1,546,788 1,500,000 2004.09.14-2010.06.14Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Second subordinated bankdebentures issued in 2004
500,000 500,000 2004.09.14-2010.06.14Principal is repayable on
maturity date.
Index rate plus 0.50%. Interest isreset semiannually since theissuance date. Interest is paidsemiannually.
First subordinateddebentures issued in 2005
3,000,000 3,000,000 2005.12.13-2011.06.13Principal is repayable on
maturity date.
Index rate plus 0.35%. Interest isreset semiannually since theissuance date. Interest is paid
semiannually.
$ 30,973,021 $ 35,800,000
20. BONDS PAYABLE
The Bank (formerly IBT) issued US$180,000 thousand in zero coupon Euro convertible bonds with par of US$1,000 onDecember 22, 2004. The terms of the bonds are as follows:
a. Redemption method
The Bank will redeem the bonds on the maturity date at a price equal to 99.95% of the outstanding principal amount unlessthe bonds have been previously redeemed, repurchased and canceled, or converted.
1) Redemption at the Bank’s option
a) At any time on or after December 22, 2006 and before December 22, 2009, the Bank may redeem all the bonds atone time or make piecemeal redemptions at 100% of the principal if the average closing price of the shares,translated into U.S. dollars at the prevailing rate on the issue date, for at least 20 consecutive trading daysimmediately preceding the date of such notice of redemption, is at least 130% of the conversion price then ineffect, translated into U.S. dollars at the fixed exchange rate.
b) the Bank may redeem all the bonds at one time, but not piecemeal, at 100% of the principal at any time if at least90% of the principal of the bonds has already been redeemed, repurchased and canceled, or converted.
c) the Bank may redeem all the bonds at one time, but not piecemeal, at 100% of the principal at any time if anychanges in ROC taxation would require the Bank to gross up the payment of interest or premium.
54
Financial Report
2) Redemption at the holders’ option
a) Each bondholder has the right to require the Bank to redeem all or part of the bonds only on December 22, 2006at 99.98% of the principal unless the bonds had been previously redeemed, repurchased and canceled, orconverted.
b) Each holder has the right to require the Bank to buy all of the holder’s bonds at 100% of the principal amount ifthe shares cease to be listed or admitted for trading on the TSE for at least five consecutive trading days.
c) Each holder has the right to require the Bank to buy all or a portion of the holder’s bonds at 100% of the principal
amount if there is change of control over the Bank.
d) On December 26, 2005, the Bank became a wholly owned subsidiary of the Company. This developmentconstitutes a change of control, on which the bond indenture has certain provisions. Thus, under the indenture,each holder has the right to require IBT to repurchase all or a portion of his/her bond holdings. In addition, IBTset February 22, 2006 as the change of control date and the change of put price at 100% of the unpaid principal ofthe bonds.
b. Maturity date
The maturity period is five years after bond issuance. Since the bonds were issued on December 22, 2004, the maturitydate is on December 22, 2009.
c. Pledged: Negative.
d. Conversion period
The bondholders can convert the bonds to IBT’s stock between January 21, 2005 and December 12, 2009. They, however,will not be able to effect conversions during the closed period. A closed period is (i) 60 days before any generalstockholders’ meetings; (ii) 30 days before any special stockholders’ meetings; (iii) 5 days before the declaration ofdividends or other benefits; (iv) the period from the date following the third trading day before the date of IBT’snotification to the Taiwan Stock Exchange of the record date for the determination of stockholders entitled to the receipt ofdividends, subscription for new shares due to capital increase, or appropriation of other benefits and bonuses; and (v) suchother periods during which IBT should suspend the trading of its stocks, as required by ROC laws and regulations.
e. Conversion price
1) The conversion price on issuance is NT$26.26 per share. The conversion price in U.S. dollars is based on theexchange rate of US$1=NT$32.49. The conversion price is subject to adjustment based on certain terms of therelated indenture. (Effective July 8, 2005, the conversion price for distributing cash dividends was adjusted fromNT$26.26 to NT$25.22.)
2) If the average closing price of the shares for any 30 consecutive trading days immediately before December 22, 2005,
December 22, 2006, December 24, 2007 and December 22, 2008 (the ‘‘special reset dates’’), converted into U.S.dollars at the prevailing rate on the special reset dates, is less than the conversion price then in effect converted intoU.S. dollars at the fixed exchange rate, the conversion price may be decreased up to 80% of original conversion price.Effective December 22, 2005, the conversion price was reset from NT$25.22 to NT$22.99. Effective June 30, 2006,the conversion price was reset from NT$22.99 to NT$22.25. Effective November 13, 2006, the conversion price wasreset NT$18.94. When converting to SPH’s shares, the conversion price was $16.31 which was reset at a share swapratio 1:1.3646.
f. Settlement option
Instead of delivering to the holders some or all of the shares required for the valid exercise of a conversion right, IBT mayelect to make a cash payment for all or any portion of a holder’s bonds deposited for conversion.
g. Supplemental agreements
On December 26, 2005, IBT became a wholly owned subsidiary of the Company and IBT’s common shares were ceased to
be traded on the TSE. In the interest of the bondholders, IBT granted to the bondholders outside the United States theadditional rights, after converting the bonds into common shares of IBT, and further exchanging IBT’s common shares forthe Company’s shares at a certain ratio. If the bondholders do not choose to convert into the Company’s common shares,their bonds still can be converted into IBT’s common shares.
www.banksinopac.com
55
The Bank purchased bonds both with par value of US$2,000 thousand from the secondary market. As of December 31,2006 and 2005, bonds with par value of US$176,000 thousand and US$178,000 thousand, respectively, were still
outstanding.
21. OTHER LIABILITIES
December 31
2006 2005
Reserve of land value increment tax $ 458,362 $ 623,423Accrued pension liabilities 752,722 573,382Deferred tax liabilities 378,981 593,768Guarantee deposit received 367,125 349,104Others 591,664 1,238,945
$ 2,548,854 $ 3,378,622
22. STOCKHOLDERS’ EQUITY
a. Capital stock
The capitalization of retained earnings in 2004 had been approved by the authority, and the authorized and issued capitalincreased from $19,443,976 to $20,863,392 on July 6, 2005. Pursuant to the Financial Holding Company Act, the
116,565 shares of SPH, which were held by the Bank for three years as of May 8, 2005, has been cancelled andsubsequently decreased the SPH’s capital stock. In addition, the alteration registration has been completed. Because theBank did not receive the proceeds from SPH for those cancelled shares, it had to decrease its capital according to thecapital decrease ratio. The capital stock decreased by $1,135,324 (please see Note 6), and the capital stock after capitaldecrease amounted to $19,728,068. Furthermore, the Bank increased its authorized capital to $80,000,000 toaccommodate the need of mergering with IBT and issued 2,612,390,428 shares for the merger with IBT on November 13,2006. The capital stock after merger amounted to $45,851,972.
b. Capital surplus
Under related regulations, capital surplus may only be used to offset a deficit. However, capital surplus arising fromissuance of shares in excess of par value (including issuance in excess of common stock par value, issuance of shares forcombinations and treasury stock transactions) and donations may be transferred to common stock on the basis of thepercentage of shares held by the stockholders. Any capital surplus transferred to common stock should be within a certainpercentage prescribed by law.
c. Retained earnings and dividend policy
The Bank’s Articles of Incorporation provide that the Bank may declare dividends or make other distributions fromearnings after it has:
1) Deducted any deficit of prior years;
2) Paid all outstanding taxes;
3) Set aside 30% of remaining earnings as legal reserve;
4) Set aside any special reserve or retained earnings allocated at its option;
5) Allocated Stockholders’ dividends
6) Allocated at least 1% of the remaining earnings which allocated stockholders’ dividends as employee bonus.
To comply with the Bank’s globalization strategy, strengthen its market position, integrate its diversified businessoperation and be a major local bank, the Bank has adopted the “Balanced Dividend Policy”. Under this policy, dividendsavailable for distribution are determined by referring to its capital adequacy ratio (CAR). Cash dividends may be declaredif the Bank’s CAR is above 10% and stock dividends may be declared if the CAR is equal to or less than 10%. However,
56
Financial Report
the Bank may make a discretionary cash distribution even if the CAR is below 10%, if approved at the stockholders’meeting, for the purpose of maintaining the cash dividends at a certain level in any given year.
Cash dividends and cash bonus are paid when approved by the stockholders, while the distribution of stock dividendsrequires the additional approval of the authorities.
Under the Company Law, the appropriation for legal reserve is made until the reserve equals the aggregate par value of theoutstanding capital stock of the Bank. This reserve is only used to offset a deficit. When its balance reaches 50% ofaggregate par value of the outstanding capital stock of the Bank, and the Bank have no earnings, the legal reserve over 50%can be distributed as stock dividend or bonus, or, the Bank have no deficit, the Bank can retain the legal reserve up to 15%
of the outstanding capital and transferred the remaining legal reserve to common stock. In addition, the Banking Lawprovides that, before the balance of the reserve reaches the aggregate par value of the outstanding capital stock, annual cashdividends, remuneration to directors and supervisors and bonus to employees should not exceed 15% of aggregate parvalue of the outstanding capital stock of the Bank.
Under the Financial Holding Company Act, the board of directors is empowered to execute the authority in stockholders’meeting, which is under no jurisdiction in the related regulations in the Company Law.
On June 2, 2006, and April 28, 2005, the board of directors which execute rights and functions of stockholders’ meetingresolved the appropriation of 2005 and 2004 earnings, respectively, as follows:
Dividends Per Share
Earnings Appropriation (New Taiwan Dollars)
2005 2004 2005 2004
Legal reserve $ 497,192 $ 1,285,444
Remuneration to directors and supervisors 32,000 26,847Bonus to employees - cash 11,601 28,946Cash dividends 1,116,514 1,419,416 $0.57 $0.73Stock dividends - 1,419,416 0.73
$ 1,657,307 $ 4,180,069
On March 21, 2006, and June 10, 2005, IBT’s stockholders’ meeting resolved the appropriation of 2005 and 2004 earnings,respectively, as follows:
Dividends Per Share
Earnings Appropriation (New Taiwan Dollars)
2005 2004 2005 2004
Legal reserve $ 735,310 $ 983,825Special reserve - 93,966
Remuneration to directors and supervisors 62,531 55,583Cash dividends 1,623,017 2,000,980 $0.73 $0.9Bonus to employees - cash 187,592 166,748
$ 2,608,450 $ 3,301,102
Under the Financial Holding Company Act, the board of directors is empowered to execute the authority in stockholders’
meeting. IBT is under no jurisdiction in the related regulations in the Company Law effective on December 26, 2005.
The appropriation of 2006 earnings has not yet been resolved by the board of directors as of February 8, 2007, the date ofauditors’ report. The related information regarding the proposed and resolved earnings appropriation can be found at theSEC Market Observation Post System (M.O.P.S.) website.
In addition, had the aforementioned remuneration to directors and supervisors and bonus to employees (included in theappropriation of 2005 and 2004 earnings) been recognized as expenses, the basic EPS (after tax) for 2005 would have been
decreased from NT$0.98 to NT$0.97 per share, and the basic EPS (after tax) for 2004 would have been decreased fromNT$2.05 to NT$2.03 per share.
www.banksinopac.com
57
23. COMMISSIONS AND FEE REVENUES, NET
For the Years Ended
December 31
2006 2005
Commissions and fees revenuesMutual funds $ 1,455,868 $ 1,077,739Loan 500,567 1,209,130Import and export 449,861 462,585Factoring and financing 273,827 342,850
Custody 272,212 290,853Credit card 140,534 579,809Automatic equipment service fees 76,370 86,137Guarantee and acceptance 65,747 81,432Financial transaction 2,711 4,765Others 188,549 247,490
3,426,246 4,382,790Commissions and fees expenses
Mutual funds 129,489 74,703Automatic equipment service fees 82,135 77,032Loan 64,334 66,777Financial transaction 49,349 56,093Credit card 15,807 69,344Custody 15,229 5,478Import and export 2,592 2,288Factoring and financing 263 3,114
Others 78,466 72,255437,664 427,084
$ 2,988,582 $ 3,955,706
24. PERSONNEL EXPENSE, DEPRECIATION AND AMORTIZATION
For the Years Ended
December 31
2006 2005
Personnel expensesSalaries and wages $ 5,020,491 $ 4,973,165Pension 609,656 332,495Labor insurance and national health insurance 285,221 270,809Others 308,085 212,286
6,223,453 5,788,755
Depreciation 632,117 642,410Amortization 116,881 129,702
$ 6,972,451 $ 6,560,867
25. PENSION
The Labor Pension Act took effect on July 1, 2005, and the Bank’s employees, who were on service before July 1, 2005, couldchoose the pension mechanism either under the Labor Standard Law or under this Act. For those employees who choose thepension mechanism regulated by the Labor Standard law, their seniority prior to the enforcement of Labor Pension Act shall bemaintained. The newly hired employees, who were hired after July 1, 2005, could only be regulated by the Labor Pension Act.Since July 1, 2005, for those employees who still choose to be subjected to the Labor Standard Law, the Bank makes monthlycontributions, equal to 4% of employee salaries, to the severance payment fund. If the employees quit willingly, they still canreceive the severance payment based on the severance payment criteria. On November 13, 2006, for those employees whojoined the Bank owning to the merger and still choose to be subjected to the Labor Standard Law, the Bank made monthly
contributions, equal to 4% of employee salaries, to the severance payment fund excluding those who are eligible for promotedor enforced retirement project. If the employees quit willingly, they still can receive the severance payment based on theseverance payment criteria.
58
Financial Report
For those employees who choose to be subjected to the Labor Pension Act, the Bank ceases to contribute into severancepayment fund. The cumulated contributions generated before applying Labor Pension Act is summed up in the balance at that
month and retained in the severance payment fund. The employees will receive severance payments according to severancepayment criteria when they quit willingly.
For the Bank’s employees choose the pension mechanism regulated by the Labor Standard Law, the retirement payments shallbe paid to employees on the basis of the following standard: (i) a lump sum payment of retirement payments equal to two baseunits shall be paid for each year of service (ii) provided that each year of service exceeding fifteen years shall be entitled to onlyone base unit of wage (iii) and that the maximum payment shall be forty-five base units. Any fraction of a year which is equalto or more than year shall be counted as one year of service, and any fraction of a year which is less than year shall be counted
as half a year of service.
The Bank’s employees contribute a compulsory amount equivalent to 4% of their salaries to the employees’ pension fund, andthe Bank also makes monthly contributions to the severance payment fund. The Labor Pension Act took effect on July 1, 2005,therefore the aforementioned employees’ pension fund ceased to contribute, and the employees received their cumulativecontributions and related interest thereon.
The Bank applied defined contribution plan regulated by Labor Pension Act after July 1, 2005. Under this Act, the Bank
contributed 6% of the employee salaries to the Labor Insurance Administration (according to this Act, the contribution rate bythe employer to the Labor Pension Fund per month shall not be less than 6% of the employee’s monthly wages). For the yearsended December 31, 2006 and 2005, the pension expense amounted to $118,247 and $55,931, respectively, which werecontributed to personal pension accounts.
Information related to defined benefit pension plan of the Bank is disclosed as follows:
a. The changes in the pension fund were summarized below:
For the Years Ended December 31
2005
2006 SinoPac IBT
Balance, January 1 $ 853,803 $ 802,204 $ 864,234Contributions 752,930
(Note)127,737 143,213
Benefits paid (46,895 ) (91,783 ) (23,833 )Interest revenue 21,302 15,645 12,878
Balance, December 31 $ 1,581,140 $ 853,803 $ 996,492
Note: The contributions of 2006 included IBT’s contribution after the merger.
The aforementioned pension funds were contributed by the Bank.
b. Net pension costs for the years ended December 31, 2006 and 2005 were summarized below:
For the Years Ended December 31
2005
2006 Bank SinoPac IBT
Service cost $ 73,368 $ 113,158 $ 56,345Interest cost 43,178 40,344 63,960
Expected return on plan assets (23,589 ) (30,049 ) (32,835 )Net amortization and deferral 15,606 8,603 56,337
Net pension cost $ 108,563 $ 132,056 $ 143,807
The pension expense amounted to $153,576 was recognized based on accrual report by IBT for the period ended November13, 2006 and by Bank SinoPac for the year ended December 31,2006. The pension expense included the expense of$225,545 for the promoted retirement project and $3,725 for others.
c. The reconciliations of the funded status of the plan and accrued pension cost as of December 31, 2006 and 2005 were asfollows:
www.banksinopac.com
59
December 31
2005
2006 Bank SinoPac IBT
Benefit obligationVested benefit obligation $ 718,052 $ 123,385 $ 629,899Nonvested benefit obligation 1,591,611 602,509 828,939Accumulated benefit obligation 2,309,663 725,894 1,458,838Additional benefit based on future salaries 923,264 335,544 714,788Projected benefit obligation 3,232,927 1,061,438 2,173,626
Fair value of plan assets (1,581,140 ) (853,803 ) (1,008,331 )
Funded status 1,651,787 207,635 1,165,295Unrecognized net transition obligation (19,910 ) (24,887 ) (229,237 )Unamortized prior service cost (187,143 ) (428 ) (936,058 )Unamortized pension loss (1,079,216 ) (59,444 ) 450,506Additional accrued pension liability 363,005 - -
Accrued pension cost $ 728,523 $ 122,876 $ 450,506
d. Vested benefit $ 1,070,916 $ 251,460 $ 767,166
e. Actuarial assumptions
1) Discount rate used in determining present value 3.5% 3.5% 3.5%2) Expected rate of return on plan assets 2.5% 2.5% 2.5%3) Future salary increase rate 2.5% 2.5% 3.5%
The Bank recognized pension costs (including overseas branches) in 2006 and 2005 were $609,656 and $332,495,respectively.
26. INCOME TAX
Under a directive issued by the MOF, a financial holding company and its domestic subsidiaries which over 90% of sharesissued was held by the financial holding company for 12 months within the same tax year, may choose to adopt the linked tax
system for income tax filings. SPH adopted the linked-tax system for income tax filings with its qualified subsidiaries since2003.
The accounting treatment applied by the Group to the income tax is to adjust in SPH’s book the difference between thecombined current/deferred taxes and the total of each Group member’s current/deferred. Related payables and receivableswere recorded in each of the Group members’ books.
a. The components of income tax were as follows:
For the Years Ended
December 31
2006 2005
Current income tax payable $ (505,674 ) $ 837,270Separate taxes on short-term bills interest revenue 510,181 338,951Change in deferred income taxes (53,280 ) (1,119 )Foreign income taxes over limitation 210,657 5,294
Income tax on unappropriated earnings (9,909 ) (23,261 )Loss deduction minus tax-exempt dividends 6,161 -
$ 158,136 $ 1,157,135
Income tax was based on taxable income from all sources. Foreign income taxes paid can be used as credits against thedomestic income tax obligations to the extent of domestic income tax applicable to the foreign-source income.
60
Financial Report
b. Reconciliation of tax on pretax income at statutory rate and current income tax payable:
For the Years Ended
December 31
2006 2005
Tax on pretax income at 25% statutory rate $ 593,629 $ 1,220,051Add (deduct) tax effects of:
Tax-exempt income (144,783 ) 1,395Permanent difference (819,353 ) (419,040 )
Temporary difference (130,833 ) 39,389Investment tax credit (4,334 ) (4,525 )
Current income tax payable (Deductible loss carryforward) $ (505,674 ) $ 837,270
c. Deferred income tax assets (liabilities) consisted of the tax effects of the following:
December 31
2006 2005
Investment income under the equity method $ (864,720 ) $ (659,900 )Deferred pension cost 330,555 236,347Unrealized foreign exchange gain and unrealized revaluation gains on
derivative from financial instruments 26,567 82,038Loss carryforward 709,463 -Effect upon adoption of the linked - tax system (114,787 ) -Others (28,598 ) (46,555 )
Deferred income tax assets (liabilities), net $ 58,480 $ (388,070 )
Deferred income tax assets (included in other assets) $ 3,408 $ 3,993
d. The estimated receivables and payables from adopting the linked tax system of income tax filing was as follows:
December 31
2006 2005
Receivable from related party $ 371,259 $ 97,082Payable from related party $ - $ 22,284
e. The related information under the Integrated Income Tax System was as follows:
December 31
2006 2005
Balances of imputed tax credit account $ 1,499,474 $ 139,615
The balances of imputed tax credit account of IBT was $79,602 as of December 31, 2005.
The projected creditable tax ratio for earnings in 2006 is 17.76% based on the estimated balances of Imputation Credit onthe dividend distribution date. The actual imputed tax ratio for earnings in 2005 was 16.35%. The actual imputed taxratio for earnings of IBT in 2005 was 27.15%.
The tax credits allocable to shareholders are based on the balance of Imputation Credit Account on the dividenddistribution date. Thus, the 2006 projected imputed tax ratio may vary from the actual ratio.
f. The unappropriated earnings generated before January 1, 1998 as of December 31, 2006 and 2005 were $8,758 and$60,938, respectively. The unappropriated earnings are recorded as capital surplus owing to merger of IBT.
g. For Bank SinoPac, income tax returns through 2002, except those for 1996, had been examined by the tax authorities. Onthe income tax returns for the aforementioned years, the tax authorities denied the creditability of 10% withholding tax oninterest income on bonds pertaining to the period when those bonds were held by other investors. Bank SinoPac appealedthe decision of the tax authorities. Nevertheless, on the basis of conservative principles, Bank SinoPac recognized$111,209 as part of income tax expenses to reflect accrued liabilities and any assets written off in relation to the foregoingwithholding taxes.
www.banksinopac.com
61
h. For the income tax returns for 1995 to 2001, the tax authorities denied the creditability of 10% withholding tax on interest
income on bonds amounting to $173,382 in 2001, which pertained to the period those bonds were held by other investors.IBT accrued this liability and appealed the decision of the tax authorities. In 2003, IBT reached an agreement with theTaipei National Tax Administration (TNTA) on the above appealing cases, in which TNTA would refund 65% of thewithholding tax denied on the interest income on bonds to IBT. The income tax return for 2003 and 2002 had beenexamined by the tax authorities according to the aforementioned refund percentage. Consequently, IBT accrued 35% ofthe withholding tax denied on the interest income on bonds as income tax expenses for 2004 to 2006, which were notrefunded by tax authorities.
Under the integrated income tax system, which took effect on January 1, 1998, the stockholders are allowed a tax credit fortheir proportionate share of the income tax paid by the Bank on earnings generated since 1998. An imputation creditaccount (ICA) is maintained by the Bank for such income tax and the tax credit allocated to each stockholder. Themaximum credit available for allocation to each stockholder cannot exceed the balance shown in the ICA on the date ofdividend distribution.
27. EARNINGS PER SHARE
The numerators and denominators used in computing earnings per shares (EPS) were summarized as follows:
Denominator EPS (NT$)
Numerator (Amounts) (Shares in After
Pretax After Tax Thousands) Pretax Tax
For the year ended December 31, 2006
Basic EPSIncome before cumulative effect
of accounting changes $ 2,374,512 $ 2,216,376 4,585,197 $ 0.52 $ 0.48Cumulative effect of accounting
change 286,297 294,839 4,585,197 0.06 0.07
Net income to common stockholders 2,660,809 2,511,215 4,585,197 $ 0.58 $ 0.55
Influence on diluted common sharesBond payable 22,387 16,790 297,669
Diluted EPS $ 2,683,196 $ 2,528,005 4,882,866 $ 0.55 $ 0.52
For the year ended December 31, 2005
Basic EPSNet income to common
stockholders $ 5,725,334 $ 4,568,199 4,659,226 $ 1.23 $ 0.98
Influence on diluted common sharesBond payable 24,640 18,480 266,442
Diluted EPS $ 5,749,974 $ 4,586,679 4,925,668 $ 1.17 $ 0.93
28. RELATED-PARTY TRANSACTIONS
In addition to the disclosure in other footnotes, relationship with the Bank and significant transactions between the Bank andrelated parties were summarized as follows:
a. Related parties
Name Relationship with the Bank
SinoPac Financial Holdings Company Limited (SPH) Parent companySinoPac Securities Corporation (SinoPac Securities) Subsidiary of SPHSinoPac Marketing Consulting Co., Ltd. (SinoPac
Marketing Consulting)Subsidiary of SPH
62
Financial Report
Name Relationship with the Bank
SinoPac Call Center Co., Ltd. (SinoPac Call Center) Subsidiary of SPHSinoPac Venture Capital Co., Ltd. (SinoPac Venture
Capital)Subsidiary of SPH
SinoPac Asset Management International (SinoPacAsset Management)
Subsidiary of SPH
SinoPac Life Insurance Agent Co., Ltd. (SPLIA) Subsidiary of the BankSinoPac Property Insurance Agent Co., Ltd. (SPPIA) Subsidiary of the Bank
SinoPac Card Services Co., Ltd. (SinoPac CardServices, formerly known as Anshin Card ServicesCompany, Ltd.)
Subsidiary of SPH
SinoPac Investment Trust Corp. Subsidiary of SPH. All its managed funds have beentransferred to Grand Cathay Securities InvestmentTrust Corporation. Now it is under the liquidationprocess.
Grand Cathay Securities Investment Trust
Corporation
Investee company under the equity method
Far East National Bank (FENB) Overseas affiliate of the BankSinoPac Leasing Corporation (SPL) SubsidiaryRSP Information Service Company Limited (RSP
Information)Affiliate of the Bank
SinoPac Capital Ltd. (Hong Kong) Overseas affiliate of the BankGrand Capital International Limited (Grand Capital) Subsidiary of SPLFortune Investment Co., Ltd. (Fortune Investment) Affiliate
Ruentex Development Co., Ltd. (RuentexDevelopment)
Affiliate
Wal Tech International Corporation (Wal TechInternational)
Affiliate
SinoPac Columbus Fund Managed by Grand Cathay Securities Investment TrustCo., Ltd.
SinoPac New Century Fund Managed by Grand Cathay Securities Investment TrustCo., Ltd.
SinoPac Global Fixed Income Portfolio Fund Managed by Grand Cathay Securities Investment TrustCo., Ltd.
SinoPac Asia Securities (Asia) Limited Affiliate of SinoPac SecuritiesSinoPac Futures Corporation (SinoPac Futures) Subsidiary of SinoPac SecuritiesSinoPac Managed Futures Co., Ltd. (SinoPac
Managed Futures)Affiliate of SinoPac Securities
SinoPac Securities (Cayman) Holding Subsidiary of SinoPac SecuritiesRung-Tzung Investment Corp. Affiliate
TaiGen Biotechnology Company Ltd. AffiliateBoardTek Electronics Corp. AffiliateOther The Bank’s directors, supervisors, managers and their
relatives, department chiefs, the investees accountedfor by the equity method and their subsidiaries, and theinvestees of SPH’s other subsidiaries, etc.
Other Related parties under the control of the Bank but withouttransactions, please refer to Table 4
b. Significant transactions between the Bank and related parties
1) Loans
Ending % of Interest % of
Balance Total Interest Rate Revenue Total
For the year ended December 31, 2006
SPL $ 890,000 0.15 1.89-2.07 $ 12,357 0.03SinoPac Securities 640,000 0.11 1.75 919 -Grand Capital 521,536 0.09 6.03 29,042 0.15
www.banksinopac.com
63
Ending % of Interest % of
Balance Total Interest Rate Revenue Total
For the year ended December 31, 2006BoardTek Electronics Corp. $ 359,000 0.06 2.94 $ 1,759 -Rung-Tzung Investment Corp. 246,671 0.04 3.45-3.51 684 -Others 507,677 0.09 1.75-8.3 3,734 0.01
For the year ended December 31, 2005
SPL 758,000 0.12 1.58-1.82 21,833 0.07Grand Capital 525,760 0.09 4.85 25,744 0.09SinoPac Securities 500,000 0.08 1.53 459 -BoardTek Electronics Corp. 344,000 0.06 2.4-2.77 8,744 0.03Rung-Tzung Investment Corp. 246,671 0.04 3.12-3.2 7,164 0.02Others 1,577,084 0.26 1.58-7.4 35,043 0.12
2) Deposits
Ending % of Interest % of
Balance Total Interest Rate Expense Total
For the year ended December 31, 2006
SinoPac Securities $ 1,636,689 0.22 0-2.9 $ 22,525 0.11SinoPac Securities (Asia) Limited 1,005,482 0.13 0-5.15 42,266 0.20
SPH 422,450 0.06 0-5.37 76,139 0.36TaiGen Biotechnology 401,825 0.05 0.1-2.35 547 -SinoPac Venture Capital 378,697 0.05 0.1-2.35 5,525 0.03Others 3,193,984 0.42 0-13 45,472 0.21
For the year ended December 31, 2005
SPH 3,075,033 0.43 0-4.501 30,374 0.20
SinoPac Securities 1,244,444 0.17 0-1.89 21,071 0.14SinoPac Venture Capital 547,291 0.08 0.3-1.75 1,812 0.01SinoPac Capital Ltd. (Hong Kong) 471,547 0.07 3.4-4.4 678 -TaiGen Biotechnology 416,200 0.06 1.5-2.07 1,309 0.01Others 4,796,333 0.67 0-13 70,166 0.45
3) Due from banks, call loans to banks and other receivables
Ending Balance % of Total
December 31 December 31
2006 2005 2006 2005
Due from banks - FENB $ 45,534 $ 63,413 0.45 0.95Other receivables 15,311 6,453 2.00 0.47
4) Financial assets at fair value through profit or loss
Ending Balance % of Total
December 31 December 31
2006 2005 2006 2005
Structured instruments - SinoPac Securities $ - $ 146,600 - 0.38Mutual fund - SinoPac New Century Fund 67,727 50,000 0.25 0.13
Mutual fund - SinoPac Columbus Fund 65,507 36,000 0.25 0.09Mutual fund - SinoPac Global Fixed Income
Portfolio Fund 228,046 - 0.85 -
64
Financial Report
5) Guarantees
The Bank had provided guarantees on commercial papers issued by SinoPac Securities. The aggregate face amountsof commercial paper were as follows:
December 31
2006 2005
SinoPac Securities $ 38,000 $ 35,000
Guarantees and credits on SPL, Wal Tech International and Grand Capital were collateralized by the following assetsprovided by SPL:
December 31
2006 2005
Properties - carrying amount $ 1,094,976 $ 1,104,568
Guarantees and credits on SinoPac Securities were collateralized by the following assets provided by SinoPacSecurities:
December 31
2006 2005
Properties and leased assets - carrying amount $ 1,163,131 $ 1,173,521
Certificates of deposit 730,000 830,000
$ 1,893,131 $ 2,003,521
Guarantees and credits on Fortune Investment were collateralized by the following assets provided by FortuneInvestment:
December 31
2006 2005
Properties - carrying amount $ 59,653 $ 40,064Stocks - fair value 121,355 8,253
6) Unquoted equity instrument
In coordination with restructure of the parent company - SPH, the Bank and subsidiaries transferred the followingunquoted equity instruments to SinoPac Venture Capital at book value in 2005.
Shares in
Thousands Book Value
Prudence International Fund Ltd. 5,000 $ 35,600Z-Com, Inc. 1,103 10,766Taiwan Leader Advanced Technology Co., Ltd. 1,196 8,001
7) Held-to-maturity financial assets
The Bank purchased beneficiary certificates - credit card receivables from SinoPac Card Services. The maturity andfixed interest rate of the beneficiary certificates are February 20, 2009 and 3%, respectively, and the principal was asfollows:
December 31
2006 2005
Beneficiary certificates - credit card receivables $ 80,000 $ 80,000
www.banksinopac.com
65
8) Revenues and expenses
% of Total
Amount For the
For the Years Ended Years Ended
December 31 December 31
2006 2005 2006 2005
Service fees $ 17,810 $ 22,687 0.52% 1.07%Project popularizing expense 246 410 0.01% 0.03%
9) Securities sold under agreements to repurchase
Face Amount Cost
December 31 December 31
2006 2005 2006 2005
Others
Securities sold under agreements torepurchase $ 479,157 $ 564,200 $ 502,771 $ 580,713
10) Lease
a) The Bank as a lessee
The Bank had leased certain office premises from related parties under several contracts for various periods
ranging from 1 to 15 years, with rentals paid monthly. The related information was summarized as follows:
Rental Expenses
For the Years Ended
December 31
Lessor 2006 2005 Lease Term Payment Frequency
SPL $ 70,980 $ 65,541 February 2020 Rentals paid monthly
Ruentex Development 3,300 3,672 September 2010 Rentals paid monthly
b) The Bank as a lessor
Rental Income
For the Years Ended
December 31
Lessee 2006 2005 Lease Term Payment Frequency
SPL $ 5,061 $ 3,324 June 2011 Rentals received monthlySPH 3,173 - November 2006 Rentals received monthlySinoPac Call Center 2,640 2,592 October 2007 Rentals received monthlySinoPac Securities 4,167 2,469 November 2011 Rentals received monthlySinoPac Marketing
Consulting1,798 1,870 May 2007 Rentals received monthly
SinoPac Asset Management 726 363 June 2010 Rentals received monthlySinoPac Card Services 6,158 243 September 2011 Rentals received monthly
SinoPac Venture Capital 10 5 June 2010 Rentals received monthlyWalTech International 60 - June 2011 Rentals received monthly
11) Professional advisory charges
The Bank had entered into several professional advisory contracts with its investees. The professional advisorycharges paid for the years ended December 31, 2006 and 2005 amounted to $94,799 and $127,327, respectively.
12) Due from/to affiliates
As of December 31, 2006 and 2005, the Bank’s receivables from SinoPac Card Services amounted to $29,325 and$30,535, respectively.
66
Financial Report
As of December 31, 2006, the Bank’s receivable from sale of credit card business at book value to SinoPac CardServices amounted to $4,136,864. Interest on the aforementioned receivable has been received using the short-term
bills secondary market rate for thirty days plus 0.3%. The related interest receivable and interest revenues as of andfor the year ended December 31, 2006 were $13,482 and $38,082, respectively.
As of December 31, 2006 and 2005, the Bank’s estimated payables resulting from the adoption of the linked-taxsystem as of December 31, 2006 and 2005 amounted to $371,259 and $97,082, respectively.
The Bank’s actual payables resulting from the adoption of the linked-tax system as of December 31, 2005 amountedto $22,284.
The Bank’s dividends receivables from SPH amounted to $102,577 as of December 31, 2005.
13) Asset transactions
For the year ended December 31, 2005, the Bank purchased structured instruments from SinoPac Securities amountedto $146,600.
14) In order to provide the customer-leading products and services, pursue the growth of market share and profit, SinoPacCard Services acquired IBT credit card business segment and its net assets at book value.
Items Amount
Receivables $ 5,545,530Allowance for credit losses (330,323 )Other assets 297Payables (14,447 )Other liabilities (29,977 )
$ 5,171,080
15) Derivative financial instruments
December 31, 2006
Contract
(Notional)
Amount Credit Risk Fair Value
Currency swap contractsSPH $ 1,500,000 $ - $ (277 )
Grand Capital 8,033 - (5 )FENB 950,286 79 79SinoPac Capital Ltd. (Hong Kong) 691,695 78 78
Interest rate swap contractsSPL 80,000 170 170
December 31, 2005
Contract
(Notional)
Amount Credit Risk Fair Value
Currency swap contractsFENB $ 423,420 $ 62 $ 62SinoPac Capital Ltd. 522,765 28 19
Interest rate swap contractsFENB 32,850 - (102 )SPL 80,000 1,941 1,941
SinoPac Capital Ltd. (Hong Kong) 522,769 - (717 )Forward contracts
FENB 19,506 1,044 (1 )
For transactions between the Bank and related parties, the terms are similar to those transacted with unrelated partiesexcept for the preferential interest rates offered to employees for savings and loans up to prescribed limits.
Under the Banking Law, except for government and consumer loans, credit extended by the Bank to any related party
should be fully secured, and the credit terms for related parties should be similar to those for unrelated parties.
www.banksinopac.com
67
29. SIGNIFICANT CONTINGENCIES AND COMMITMENTS
In addition to those disclosed in Note 32, financial instruments, significant contingencies and commitments of the Bank, aresummarized as follows:
a. Lease contract
The Bank leased certain office premises under several contracts for various periods ranging from one to fifteen years, withrentals paid monthly, quarterly or semiannually. Rentals for the next five years are as follows:
Year Amount
2007 $ 355,6662008 284,4452009 237,9992010 159,9902011 105,246
Rentals for the years beyond 2012 amount to $547,597, the present value of which is about $456,613 as discounted at theBank’s one-year time deposit rate of 2.2% on January 1, 2007.
b. Equipment purchase contract
The Bank had entered into contracts to buy computer hardware and software for $129,867, of which $58,737 had alreadybeen paid as of December 31, 2006.
c. Interior decoration contract
The Bank had entered into interior decoration contracts for $34,553, of which $10,812 has already been paid as ofDecember 31, 2006.
d. Bills and bonds sold under agreements to repurchase
As of December 31, 2006, bills and bonds with a total face amount of $13,518,307 were sold under agreements to
repurchase at $14,683,848 between January 2007 and May 2007.
e. Bills and bonds purchased under agreements to resell
As of December 31, 2006, bills and bonds with a total face amount of $4,446,800 were purchased under agreements toresell at $4,786,339 in January 2007.
f. The Securities and Futures Investors Protection Center (SFIPC) is believed by investors to be filing a lawsuit against theBank in the ground that Procomp Informatics Ltd. provided deposit with the Bank’s Sungshan Branch and limited the
usage as a condition for short-term loan to Addie International Limited granted by SPL and for helping ProcompInformatics Ltd. window-dressing its financial statements. As of June 29, 2005, the SFIPC filed additional lawsuit againstthe Bank, SPL and all other parties related to Procomp Informatics Ltd. Case for compensation in the amount of$4,467,129. As a matter of fact, the Bank was authorized to engage in financing activities and did not help ProcompInformatics Ltd. window-dressing its the financial statements. According to the Bank attorney’s opinion, the claims fromSFIPC is without sufficient reason and the Bank does not need to compensate the investors for the damage.
g. The SFIPC is believed by investors to be filing a lawsuit against the Bank in the ground that National Aerospace Fasteners
Corporation provided an accounts receivable - factoring with the Bank’s Tunpei Branch and recorded the substantially loantransaction as an accounts receivable financing activity to window-dress its financial position which the investors madetheir investing decision based on since the third quarter of 2002. As of April 21, 2006, the SFIPC files lawsuit against theBank and all other parties for compensation in the amount of $570,000. The Bank has entered a plea on such charges andthe case is under trying in the count of first instance.
30. RESTATEMENT OF FINANCIAL STATEMENT
The Bank mergered with IBT on November 13, 2006. Under explanations (91) 243 and 244 issued by the ARDF of ROC, themerger should be treated as a recognization and should be recorded at the book value of both entities’ assets and liabilitiesbecause of the Bank and IBT are both 100% owned subsidiaries of SPH . In accordance with the interpretation No. (95) 141, the
68
Financial Report
financial statements of Bank SinoPac should be retroactively restated assuming the assets and liabilities of IBT have beenincluded at book value. The Bank acquired net assets, amounted to $35,181,212 of IBT through a share swap at ratio of 1.175
shares and issued 2,612,390 thousand shares. The net assets were as follows:
Item Amount
Cash and cash equivalents $ 6,342,189Due from the central bank and other banks 15,714,110Financial assets at fair value through profit or loss 6,063,884Securities repurchased under agreement to resell 2,402,443
Available-for-sale financial assets 52,027,862Accounts, interest and other receivables, net 18,419,324Discounts and loans, net 280,008,538Held-to-maturity investments 1,408,522Equity investments - equity method 352,417Properties, net 4,894,493Other assets 2,934,318Other financial assets 1,519,023
Call loans and due to banks (4,406,710 )Accounts interest and other payables (4,850,796 )Accrued pension liability (450,506 )Other financial liability (394,356 )Deposits and remittances (322,750,636 )Due to the Central Bank and other banks (5,669,748 )Convertible bond (5,776,144 )Other liabilities (1,330,784 )
Securities sold under agreements to repurchase (11,064,014 )Financial liabilities at fair value through profit or loss (212,217 )Net assets 35,181,212Cumulative translation adjustments (13,386 )Unrealized gain (loss) on financial instruments (155,072 )Unrecognized net loss as pension cost 221,269Unrealized revaluation increment on land (1,033,595 )Capital surplus due to merger (26,123,904 )
$ 8,076,524
The aforementioned assets will be used for operating purpose. The Bank does not have the plan to dispose any significantassets. The net income of Bank SinoPac for the year ended December 31, 2006 and 2005 included the net income of IBT forthe year ended December 31, 2006 and 2005.
31. AVERAGE AMOUNT AND AVERAGE INTEREST RATE OF INTEREST-EARNING ASSETS
AND INTEREST-BEARING LIABILITIES
Average balances were calculated by the daily average balances of interest-earning assets and interest-bearing liabilities.
For the Year Ended
December 31, 2006
Average Average
Balance Rate (%)
Interest-earning assets
Due from Central Bank and other banks $ 27,169,181 2.05Call loans (placement) 59,422,285 3.55Financial assets at fair value through profit or loss 34,756,193 2.44Available-for-sale financial assets 152,642,815 1.68Discounts and loans 587,788,822 3.75Accounts receivable - factoring 14,032,713 5.32
Held-to-maturity investments 2,807,695 4.49Securities purchased under agreement to resell 18,329,920 1.52Other financial assets 2,313,965 6.02Accounts receivable - revolving credit for credit card 3,095,159 18.45
www.banksinopac.com
69
For the Year Ended
December 31, 2006
Average Average
Balance Rate (%)
Interest-bearing liabilities
Due to the Central Bank and other banks $ 13,713,577 2.17Call loans (taken) 55,932,344 3.48Demand deposits 176,399,757 0.71
Savings - demand 157,286,463 0.56Time deposits 222,360,580 2.58Savings - time 195,888,351 1.98Negotiable certificates of deposit 47,304,568 1.53Securities sold under agreement to repurchase 27,762,293 1.79Bank debentures 35,663,543 1.29Other liabilities - appropriated loan fund 503,180 0.63
For the Year Ended
December 31, 2005
Average Average
Balance Rate (%)
Interest-earning assets
Due from other banks $ 6,837,175 2.56
Call loans (placement) 53,568,355 2.73Due from the Central Bank 19,418,345 1.23Securities purchased 151,238,883 1.68Securities purchased under agreement to resell 21,877,551 1.26Loans, discounts and bills purchased 560,134,206 3.51Accounts receivable from factoring 11,499,315 4.40Other long-term investments 1,538,789 2.73Accounts receivable - revolving credit for credit card 3,154,624 17.88
Interest-bearing liabilities
Due to other banks 16,698,805 1.66Call loans (taken) 49,463,431 2.81Demand deposits 95,534,341 0.88Savings - demand deposits 150,236,460 0.55Time deposits 168,195,369 1.88Savings - time deposits 188,628,472 1.62
Negotiable certificates of deposit 57,423,893 1.26Bank debentures 32,956,164 1.84Securities sold under agreement to repurchase 33,596,535 1.33Other liabilities - appropriated loan fund 374,153 0.75
32. FINANCIAL INSTRUMENTS
a. Fair value of financial instruments
December 31
2006 2005
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
AssetsFinancial assets - with fair values approximating
carrying amounts $ 166,231,867 $ 166,231,867 $ 168,541,421 $ 168,541,421
Financial assets at fair value through profit or loss 26,705,333 26,705,333 38,129,869 38,491,719Available-for-sale financial assets 170,503,845 170,503,845 114,112,380 114,235,263Discounts and loans 589,416,452 589,416,452 607,483,496 607,483,496
70
Financial Report
December 31
2006 2005
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Held-to-maturity financial assets $ 2,337,184 $ 2,362,219 $ 3,285,429 $ 3,262,793Equity investment-equity method 8,877,958 8,877,958 8,310,797 8,263,666Other financial assets 4,962,870 4,956,237 2,232,675 2,312,395
Liabilities
Financial liabilities - with fair valuesapproximating carrying amounts 875,023,577 875,023,577 845,515,859 845,515,859
Financial liabilities at fair value through profit orloss 3,858,791 3,858,791 1,030,641 1,030,641
Other financial liabilities 805,859 805,859 538,472 538,472Other liabilities 2,548,853 2,548,853 3,378,622 3,378,622Bonds payable 5,736,896 6,124,136 5,849,080 6,104,977
Effective on January 1, 2006, the Bank adopted the Statement of Financial Accounting Standard No. 34 “Accounting for
Financial Instruments”, No. 36 “Disclosure and Presentation of Financial Instruments” and other standards amended forharmonising with those two standards. The amount of the cumulative effect resulting from the change to new accountingprinciples refers to Note 3.
The gains (losses) on derivative financial instruments for the years ended December 31, 2006 and 2005 were as follows:
For the Years Ended December 31
Account 2006 2005
For hedging purposes:Cross-currency swap contracts
- Realized Interest revenue $ 119,867 $ 252,649
Interest expense (710,586 ) (459,472 )
Foreign exchange revenue 1,307 -
Interest rate swap contracts- Realized Interest revenue 34,372 48,328
Interest expense (160,224 ) (88,297 )
Income from derivative financialinstruments transactions - 12,669
Foreign exchange (loss) gain (10,642 ) 41,967(725,906 ) (192,156 )
For the purposes of accommodatingcustomers’ needs or managing theBank’s exposures:Forward contracts
- Realized Interest revenue 299,583 474,627Interest expense (103,451 ) (350,335 )
- Realized Foreign exchange loss 720 274,154- Unrealized Foreign exchange gain (loss) (289,639 ) 539,171
- Unrealized Loss on derivative financialinstruments transactions (39,350 ) (1,972 )
Forward rate agreements- Realized Loss on derivative financial
instruments transactions - (487 )- Unrealized Income from derivative financial
instruments transactions - 486Currency swap contracts
- Realized Interest revenue 3,658,611 2,613,841Interest expense (2,638,603 ) (2,314,701 )Loss from derivative financial
instruments transactions ( 91,484 ) -- Unrealized Income from (Loss on) derivative
financial instruments transactions ( 73,303 ) 90,949Interest rate swap contracts
- Realized Interest revenue 2,082,169 856,429
Interest expense (2,058,822 ) (888,810 )
www.banksinopac.com
71
For the Years Ended December 31
Account 2006 2005
- Realized Income from derivative financialinstruments transactions $ 16,058 $ 9,147
- Unrealized Income from (loss on) derivativefinancial instrumentstransactions (69,393 ) 8,980
Foreign-currency options contracts
- Realized Loss on derivative financialinstruments transactions (340,454 ) (395,411 )
Foreign exchange gain (loss) 484,258 (244,412 )- Unrealized Income from (loss on) derivative
financial instrumentstransactions 180,789 (660,359 )
Interest rate futures contracts
- Realized Income from (loss on) derivativefinancial instrumentstransactions 51,091 (2,422 )
Foreign exchange gain 697 336- Unrealized Income from (loss on) derivative
financial instrumentstransactions 290 (2,495 )
Cross-currency swap contracts
- Realized Interest revenue 292,282 408,070Interest expense (291,178 ) (406,123 )Income from derivative financial
instruments transactions485,169 271,266
- Unrealized Loss on derivative financialinstruments transactions (71,781 ) (2,836 )
Credit default swap contracts
- Realized Income from (loss on) derivativefinancial instrumentstransactions (20,660 ) 4,900
- Unrealized Income from derivative financialinstruments transactions 4,588 -
Miscellous swap contracts
- Realized Income from derivative financialinstruments transactions 4,104 1,125
1,472,291 283,118
$ 746,385 $ 90,962
b. Methods and assumptions applied in estimating the fair values disclosures for financial instruments are as follows:
1) The carrying amounts of cash and cash equivalent, due from the Central Bank and other banks, securities purchasedunder agreements to resell, receivable, call loans and due to banks, payables, securities sold under agreements torepurchase, and remittances approximate their fair values because of the short maturities of these instruments.
2) For financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity investmentsand hedged derivative financial instruments, fair value is best determined based upon quoted market prices.However, in many instances, there are no quoted market prices for the Bank’s various financial instruments. In caseswhere quoted market prices are not available, fair values are based on estimates using available indirect data and
appropriate valuation methodologies.
Forward contracts’ and interest rate swap contracts’ fair values are based on estimates using present value techniques.Options’ fair value are based on estimates using Black Scholes model.
72
Financial Report
Fair value of forward contracts are estimated based on the forward rates provided by Reuters or the Associated Press.
Fair value of structured instruments are provided by the counter parties. All outstanding contracts are based onmatch basis and market risks will be offset.
Fair value of interest rate swap contracts and cross currency swap contracts are estimated based on the marketquotation provided by Reuters.
3) Discounts and loans, and deposits are interest-earning assets and interest-bearing liabilities. Thus, their carryingamounts represent fair values. Fair value of nonperforming loans is based on the carrying amount, which is net of
allowance for credit losses.
4) When unquoted equity instruments which the Bank does not have significant influence over the investees do not havea quoted market price in an active market and whose fair value cannot be reliably measured, are measured at cost.
c. Interest revenue of financial assets and liabilities other than those at fair value through profit or loss amounted to$32,795,101 and $27,112,344, respectively, for the years ended December 31, 2006 and 2005. Interest expense offinancial assets and liabilities other than those at fair value through profit or loss amounted to $18,154,456 and $13,148,904,
respectively, for the years ended December 31, 2006 and 2005. Unrealized gains or losses on available-for-sale financialassets amounted to ($181,492) were charged to stockholders’ equity for the year ended December 31, 2006.
d. Financial risk information
1) Market risk
The Bank sets up risk managing indicators according to the characters of the products to achieve the goal of risk
management. The Bank evaluates market risk exposure limits approved by the board of directors and informs relatedunits when over the limits timely.
Fair value of financial assets and financial liabilities determined based upon quoted market prices or estimatessummarized as follows:
Quoted Fair Value Based
Market Prices on Estimates
December 31, 2006
Financial assets
Financial assets at fair value through profit or loss $ 17,930,767 $ 8,774,566Available-for-sale financial assets 169,489,588 1,014,257Held-to-maturity investments 2,122,684 214,500Other financial assets 378,413 4,584,457
Financial liabilities
Financial liabilities at fair value through profit or loss 3,175,600 683,191
The Bank establishes various specialist committees in head office and oversea branches to perform the role ofimplementing the risk management policies and procedures. Each sub-risk management team reviews limits onmonitoring and managing risk exposures under the respective supervision and reports to head office managementteam.
Market risk reports which include the monitor of outstanding position limitation of loss and quantitative measures ofrisk indicators are provided to risk management sector to manage risk exposure, risk premium and capital allocation.The indicators are calculated by the valuation models. The Bank uses the value-at-risk approach and Monte Carlosimulation method to derive quantitative measures for the trading book market risks under normal condition since2005.
The Bank formally document in writing its intention to apply hedge accounting and follow the requirement of relatedaccounting standards. Risk management sector should assess the effectiveness of the hedge relationship periodically.
www.banksinopac.com
73
2) Credit risk
The Bank is exposed to credit risk in the event of default on contracts by counter-parties. The Bank makes creditcommitments and issues financial guarantees and standby letters of credit only after careful evaluation of customers’credit worthiness. On the basis of the result of the credit evaluation, the Bank may require collateral before drawingsare made against the credit facilities. As of December 31, 2006 and 2005, ratios of secured loans to total loans bothwere 59.6% and 62.2%, respectively. Ratio of secured financial guarantees and standby letters of credits were from12.2% to 12.4%. Collaterals held vary but may include cash, inventories, marketable securities, and other properties.When the customers default, the Bank will, as required by circumstances, foreclose the collaterals or execute otherrights arising out of the guarantees given. Since most of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future cash demands. The maximumpotential amount of future payments represents the notional amounts that could be lost under the guarantees if therewere a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisionsor from collateral held or pledged.
The maximum credit exposure of the financial instruments held by the Bank equaled the book value except whichanalyzed as follows:
December 31
2006 2005
Items
Carrying
Amount
Maximum
Credit
Exposure
Carrying
Amount
Maximum
Credit
Exposure
Off-balance-sheet credit riskFinancial guarantees and standby letter of
credit $ - $ 24,607,885 $ - $ 25,223,553
Undrawn loan commitments - 17,240,368 - 21,983,090Credit card commitments for credit card - - - 45,505,477
Effective on January 1, 2006, the Bank adopted the Statement of Financial Standard No. 34 “Accounting for financialInstruments.” The amount of the cumulative offset resulting from the change to new accounting principles refer toNote 3.
The credit risk amounts of counterparties presented above were off-balance sheet credit risk contracts with positiveamounts on the balance sheet. Concentrations of credit risk exist when changes in economic, industry or geographicfactors similarly affect groups of counterparties whose aggregate credit exposure is material in relation to the Bank’stotal credit exposure. The Bank maintains a diversified portfolio, limits its exposure to any one geographic region,country or individual creditor and monitors the exposure on a continuous basis. On December 31, 2006 and 2005,the Bank’s most significant concentrations of credit risk were summarized as follows:
December 31
2006 2005
Credit Risk Profile by Counterparty
Carrying
Amount
Maximum
Credit
Exposure
Carrying
Amount
Maximum
Credit
Exposure
Private sector $ 281,757,324 $ 281,757,324 $ 209,385,139 $ 209,385,139Consumer 351,934,341 351,934,341 351,118,923 351,118,923Government 29,139,346 29,139,346 36,128,896 36,128,896
$ 662,831,012 $ 662,831,012 $ 596,632,958 $ 596,632,958
December 31
2006 2005
Credit Risk Profile by Industry Sector
Carrying
Amount
Maximum
Credit
Exposure
Carrying
Amount
Maximum
Credit
Exposure
Electricity industry $ 70,824,196 $ 70,824,196 $ 71,192,406 $ 71,192,406Wholesale trade 39,963,529 39,963,529 45,348,865 45,348,865Insurance and real estate activities 33,936,912 33,936,912 29,481,598 29,481,598
$ 144,724,637 $ 144,724,637 $ 146,022,869 $ 146,022,869
74
Financial Report
December 31
2006 2005
Credit Risk Profile by Region
Carrying
Amount
Maximum
Credit
Exposure
Carrying
Amount
Maximum
Credit
Exposure
Domestic area $ 540,343,828 $ 540,343,828 $ 600,728,859 $ 600,728,859Asia 14,511,155 14,511,155 8,675,094 8,675,094North America 4,811,528 4,811,528 4,929,405 4,929,405
$ 559,666,511 $ 559,666,511 $ 614,333,358 $ 614,333,358
3) Liquidity risk
As of December 31, 2006 and 2005, the liquidity reserve ratio was 29.88% and 22.6%, respectively. The Bank hassufficient capital and working capital to execute all the obligation of contract and had no liquidity risk. Thepossibility of the derivative financial instruments held by the Bank fail to liquidate quickly with minimal loss in value
is low.
The management policy of the Bank is to match in the contractual maturity profile and interest rate of its assets andliabilities. As a result of the uncertainty, the maturities and interest rates of assets and liabilities usually didn’t fullymatch. The gap may arise potential gain or loss.
The Bank applied appropriate way to group assets and liabilities. The maturity analysis of assets and liabilities wasas follows:
December 31, 2006
Due in
One Month
Due Between
One Month
and Three
Months
Due Between
Three Months
and Six
Months
Due Between
Six Months
and One Year
Due Between
One Year and
Seven Years
Due After
Seven Years Total
Assets
Cash and cashequivalents $ 24,378,605 $ - $ - $ - $ - $ - $ 24,378,605
Due from theCentral Bank andother banks 94,570,161 3,462,866 814,916 325,966 - - 99,173,909
Financial assets atfair value through
profit or loss 26,705,333 - - - - - 26,705,333
Accounts, interestand otherreceivables 16,831,052 14,479,601 5,072,590 1,214,100 851,234 36,323 38,484,900
Securities purchasedunder agreementsto resell 4,781,123 - - - - - 4,781,123
Discounts and loans 47,841,636 47,223,461 36,608,614 59,138,330 118,241,450 286,068,325 595,121,816
Non-active marketdebt instruments 951,803 - - 64,737 1,005,501 1,428,983 3,451,024
Available-for-salefinancial assets 45,464,229 23,070,212 44,874,159 49,651,959 6,263,536 1,179,750 170,503,845
Held-to-maturityinvestments 58,663 162,980 - 163,266 1,626,309 325,966 2,337,184
Hedged derivativefinancial assets - - - - 411,174 - 411,174
261,582,605 88,399,120 87,370,279 110,558,358 128,399,204 289,039,347 965,348,913
Liabilities
Call loans and dueto banks 62,732,164 5,030,458 1,705,112 7,667,830 - - 77,135,564
www.banksinopac.com
75
December 31, 2006
Due in
One Month
Due Between
One Month
and Three
Months
Due Between
Three Months
and Six
Months
Due Between
Six Months
and One Year
Due Between
One Year and
Seven Years
Due After
Seven Years Total
Liabilities
Securities soldunder agreementsto repurchase $12,495,507 $ 2,146,111 $ 12,243 $ - $ - $ - 14,653,861
Payables 16,336,809 6,294,579 2,601,267 1,818,248 620,398 - 27,671,301
Financial liabilitiesat fair valuethrough profit orloss 3,858,791 - - - - - 3,858,791
Deposits andremittance 145,152,660 120,217,999 201,267,207 206,343,668 83,482,805 - 756,464,339
Bank debentures - - - - 30,973,021 - 30,973,021
Corporate bonds - - - - 5,736,896 - 5,736,896
Hedge derivativefinancialliabilities - - - - 238,153 - 238,153
240,575,931 133,689,147 205,585,829 215,829,746 121,051,273 - 916,731,926
Net liquidity gap $ 21,006,674 $ (45,290,027 ) $(118,215,550 ) $(105,271,388 ) $ 7,347,931 $289,039,347 $ 48,616,987
December 31, 2005
Due Between
Due in One Year and Due After
One Year Seven Years Seven Years Total
Assets
Cash and cash equivalent $ 19,571,279 $ - $ - $ 19,571,279Due from the Central Bank and other banks 100,420,648 - - 100,420,648Securities purchased 153,418,983 - - 153,418,983Receivables 39,868,878 - - 39,868,878Securities purchased under agreements to
resell 9,730,380 - - 9,730,380
Loans, discounts and bills purchased(excluding nonperforming loans) 189,554,340 136,948,030 282,062,893 608,565,263
Other long-term investments 85,748 1,440,358 - 1,526,106512,650,256 138,388,388 282,062,893 933,101,537
Liabilities
Call loans and due to banks 74,598,145 - - 74,598,145Securities sold under agreements to
repurchase 26,115,884 - - 26,115,884
Payables 25,871,483 - - 25,871,483Deposits and remittances 629,700,991 89,852,975 - 719,553,966Bank debentures 5,000,000 30,800,000 - 35,800,000Corporate bonds - 5,849,080 - 5,849,080
761,286,503 126,502,055 - 887,788,558
Net liquidity gap $ (248,636,247 ) $ 11,886,333 $ 282,062,893 $ 45,312,979
4) Cash flow risk and fair value risk arising from interest rate fluctuations
Interest rate risk is the risk to earnings and value of financial instruments caused by fluctuations in interest risk. Therisk is considered to be material to the Bank, and the Bank enters into interest rate swap contracts to manage the risk.
76
Financial Report
h. Fair value hedge
The Bank enters into interest rate swap contracts and cross currency swap contracts to hedge the risk the interest ratefluctuation of the bank debenture.
December 31
2006 2005
Hedged Items Hedging Instruments Notion Amount Fair Value Notion Amount Fair Value
Bank debentures Interest rate swap $ 11,200,000 $ (142,493 ) $ 13,616,000 $ (362,396 )
Cross currency swap 14,300,000 315,514 14,300,000 21,380
$ 25,500,000 $ 173,021 $ 27,916,000 $ (341,016 )
33. MARKET RISK CONTROL AND HEDGE STRATEGY
The Bank documents the risk management policies, including overall operating strategies and risks control philosophy. The
Bank’s overall risk management policies are to minimize the possibility of potential unfavorable factors. The board ofdirectors approves the documentation of overall risk management policies and specific risk management policies; includingexchange rate risk, interest rate risk, credit risk, derivative instruments transactions and managements. The board of directorsreview the policies regularly, and review the operation to make sure the Bank’s policies are executed properly.
34. ASSET QUALITY, CONCENTRATION OF CREDIT EXTENSIONS, INTEREST RATE SENSITIVITY,
PROFITABILITY AND MATURITY ANALYSIS OF ASSETS AND LIABILITIES
a. Asset quality
(In Thousands of New Taiwan Dollars, %)
December 31, 2006 December 31, 2005
Item Amount
Overdue Loans/
Outstanding
Loan Balance
Amount
Overdue Loans/
Outstanding
Loan Balance
Overdue loans - class A $ 10,029,479 1.68 $ 7,590,984 1.24
Overdue loans - class B 2,649,108 0.44 1,323,958 0.22
Total overdue loans 12,678,588 2.13 8,914,942 1.46
Overdue loans with debt negotiation exempted
from reporting as a non-performing loan 390,928 - - -
Overdue receivables with debt negotiationexempted from reporting as a non-performingloan - - - -
Note 1: Overdue loans represent the amounts of reported overdue loans pursuant to “Regulations Governing the Procedures
for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrued Loans” issued by theMOF.
Note 2: Overdue loans - class A and class B represent the amounts of reported overdue loans as required by the BankingBureau letters dated April 19, 2005 (Ref. No. 0941000251).
Note 3: Overdue loans ratio = Overdue loans/Outstanding loans balance.
Note 4: Overdue loans and receivables with debt negotiated terms which have been performed are exempted from reporting
as non-performing loan under the requirement issued by the Banking Bureau dated April 25, 2006 (Ref. No.0951000270).
www.banksinopac.com
77
b. Concentration of credit extensions
(In Thousands of New Taiwan Dollars, %)
December 31, 2006 December 31, 2005
Credit extensions to interested parties 15,165,148 6,337,397
Ratios of credit extensions to interestedparties 2.4 0.95
Ratios of credit extensions secured bypledged stocks 0.68 0.89
Industry Percentage Industry Percentage
Consumer 64.25% Consumer 61.9%
Manufacturing 13.96% Manufacturing 14.31%Industry concentration
Wholesaling and retailing 5.99% Wholesaling and retailing 6.71%
The interested parties mentioned on the above table refers to Banking Law Article 33-1
Note 1:Total credit consists of loans, discounts and bills purchased (including import and export bill negotiations),acceptances, guarantees and prepaid factoring accounts receivable.
Note 2: Ratio of credit extensions to interested parties = Credit extensions to interested parties/Total credit extensions.
Note 3: Ratio of credit extensions secured by pledged stocks = Credit extensions secured by pledged stocks/Total creditextensions.
Note 4: Consist of the following industries required by the Central Bank: Agriculture, forestry, fishing and grazing;mining and soil excavation; manufacturing; utility and gas; construction; wholesale, retail, food and beverage;shipping, storage and communications; finance, insurance and real estate; general services and others.
c. Interest rate sensitivity information
Interest Rate Sensitivity (New Taiwan Dollars)
December 31, 2006
(In Millions of New Taiwan Dollars, %)
Items1 to 90 Days
(Included)
91 to 180 Days
(Included)
181 Days to
One Year
(Included)
Over One Year Total
Interest-rate sensitive assets $ 374,506,719 $ 120,798,079 $ 154,375,668 $ 66,186,111 $ 715,866,577
Interest-rate sensitive liabilities 221,485,188 258,501,881 167,942,652 27,605,073 675,534,794
Interest-rate-sensitive gap 153,021,531 (137,703,802 ) (13,566,984 ) 38,581,038 40,331,783
Net worth 63,192,041
Ratio of interest-rate sensitive assets to liabilities 105.97%
Ratio of interest-rate sensitive gap to net worth 63.82%
Note 1: The above amounts included only New Taiwan dollar amounts held by the onshore branches of the Bank
(i.e., excluding foreign currency).
Note2: Interest-rate sensitive assets and liabilities mean the revenues or costs of interest-earnings assets andinterest-bearing liabilities are affected by interest-rate changes.
Note 3: Interest-rate sensitive gap = Interest-rate sensitive assets - Interest-rate sensitive liabilities.
Note 4: Ratio of interest-rate sensitive assets to liabilities = Interest-rate sensitive assets/Interest-rate sensitive liabilities
(in New Taiwan dollars).
78
Financial Report
Interest Rate Sensitivity (USD)
December 31, 2006
(In Thousands of U.S. Dollars, %)
Items1 to 90 Days
(Included)
91 to 180 Days
(Included)
181 Days to
One Year
(Included)
Over One Year Total
Interest-rate sensitive assets $ 3,052,968 $ 672,007 $ 426,867 $ 351,882 $ 4,503,724
Interest-rate sensitive liabilities 3,141,043 1,767,301 325,419 3,260 5,237,023
Interest-rate-sensitive gap (88,075) (1,095,294) 101,448 348,622 (733,299)
Net worth 54,642
Ratio of interest-rate sensitive assets to liabilities 86%
Ratio of interest-rate sensitive gap to net worth ( 1,342.01%)
Note 1: The above amounts include only USD amounts held by the onshore branches, OBU and offshore branches of theBank, excludes contingent assets and contingent liabilities.
Note 2: Interest-rate sensitive assets and liabilities mean the revenues or costs of interest-earnings assets andinterest-bearing liabilities are affected by interest-rate changes.
Note 3: Interest-rate sensitive gap = Interest-rate sensitive assets - Interest-rate sensitive liabilities.
Note 4: Ratio of interest-rate sensitive assets to liabilities = Interest-rate sensitive assets/Interest-rate sensitive liabilities(in U.S. dollars)
d. Profitability(%)
ItemsYears ended
December 31, 2006
Years ended
December 31, 2005
Before income tax 0.27 0.62Return on total assets
After income tax 0.26 0.50
Before income tax 4.16 8.92Return on net worth
After income tax 3.93 7.12
Profit margin 12.50 23.54
Note 1: Return on total assets = Income before (after) income tax/Average total assets
Note 2: Return on net worth = Income before (after) income tax/Average net worth
Note 3: Profit margin = Income after income tax/Total operating revenues
Note 4: Income before (after) income tax represents income for the years ended December 31, 2006 and 2005.
e. Maturity analysis of asset and liabilities
Maturity Analysis of Asset and Liabilities (In New Taiwan Dollars)
December 31, 2006
(In Thousands of New Taiwan Dollars)
The Amount of Remaining Period to MaturityTotal
1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
Main capital inflow onmaturity $908,833,259 $216,378,256 $ 72,362,442 $ 80,741,239 $112,593,581 $426,757,741
Main capital outflow on
maturity 921,663,991 158,298,618 132,239,192 198,203,380 223,087,324 209,835,477
Gap (12,830,732) 58,079,638 (59,876,750) (117,462,141) (110,493,743) 216,922,264
Note: The above amounts included only New Taiwan dollar amounts held in the onshore branches of the Bank (i.e.excludes foreign currency).
www.banksinopac.com
79
Maturity Analysis of Assets and Liabilities (In U.S. Dollars)
December 31, 2006
(In Thousands of U.S. Dollars)
The Amount of Remaining Period to MaturityTotal
1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
Capital inflow on maturity $ 8,776,291 $ 2,707,318 $ 2,386,063 $ 1,984,497 $ 1,348,663 $ 349,750
Capital outflow on maturity 8,926,696 4,042,573 1,810,920 1,571,823 1,275,130 226,250
Gap (150,405) (1,335,255) 575,143 412,674 73,533 123,500
Note 1: The above amounts are book value held by the onshore branches and offshore banking unit of the Bank in U.S.dollars, without off-balance amounts (for example, the issuance of negotiable certificate of deposits, bonds orstocks).
Note 2: If the overseas assets amounting to at least 10% of the total assets, there should be additional disclosures.
December 31, 2005
SinoPac(In Million of New Taiwan Dollars)
The Amount of Remaining Period to MaturityTotal
1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
Assets $ 493,666 $ 144,671 $ 44,977 $ 37,765 $ 28,332 $ 237,921
Liabilities 494,724 104,833 92,679 85,972 102,115 109,125
Gap (1,058 ) 39,838 (47,702 ) (48,207 ) (73,783 ) 128,796
Accumulated gap (1,058 ) 39,838 (7,864 ) (56,071 ) (129,854) (1,058 )
IBT(In Million of New Taiwan Dollars)
The Amount of Remaining Period to MaturityTotal
1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
Assets $ 471,251 $ 96,681 $ 42,929 $ 26,848 $ 37,276 $ 267,517
Liabilities 471,379 103,466 51,330 54,898 79,713 181,972
Gap (128 ) (6,785 ) (8,401 ) (28,050 ) (42,437 ) 85,545
Accumulated gap (128 ) (6,785 ) (15,186 ) (43,236 ) (85,673 ) (128 )
Note: The above amounts included only New Taiwan dollar amounts held in the onshore branches of the Bank (i.e.excludes foreign currency).
35. STATEMENT OF CAPITAL ADEQUACY
(%)
December 31, 2005December 31,
2006 BSP IBT
Net eligible capital 70,412,031 38,116,753 35,983,078
Total risk-weighted assets 568,543,823 292,885,713 297,412,300
Capital adequacy ratios 12.38 13.01 12.10
Ratios of tier 1 capital to risk-weighted assets 11.00 9.42 11.94
Ratios of tier 2 capital to risk-weighted assets 1.59 3.72 0.57
Ratios of tier 3 capital to risk-weighted assets - - -
Ratios of the deduction from capital to risk-weighted assets (0.21 ) (0.13 ) (0.41 )
Ratios of common stockholders’ equity to total assets 6.49 5.28 8.41
Note: Capital adequacy ratio = Eligible capital/Risk-weighted assets pursuant to the Banking Law and related regulations.
80
Financial Report
36. INFORMATION REGARDING THE TRUST BUSINESS UNDER THE TRUST LAW
a. Balance sheets and trust properties of trust accounts
Balance Sheets of Trust Accounts
December 31, 2006 and 2005
Trust Assets 2006 2005 Trust Liabilities 2006 2005
Bank deposits $ 2,355,069 $ 1,479,301 Accrued expenses $ 957 $ -
Short-term investments 126,813,483 101,397,888 Payables 1,239 853
Receivables 54,746 105,562 Unearned revenue 18,224 -
Prepayments 77 52 Other liabilities 59,764 -
Long-term investment 9,724,337 9,622,757 Trust capital 148,619,203 125,173,801
Properties 11,422,662 13,348,281 Cumulative earnings 1,768,246 1,370,221
Other assets 96,158 -
Net asset value of collectiveinvestment trust fund 1,101 591,034
Total trust assets $ 150,467,633 $ 126,544,875 Total trust liabilities $ 150,467,633 $ 126,544,875
Trust Properties of Trust Accounts
December 31, 2006 and 2005
Investment Portfolio 2006 2005
Bank deposits $ 2,355,069 $ 1,479,301
Short-term investmentsBonds 43,562,655 36,726,589
Common stock 4,864,916 4,375,413
Funds 78,385,912 60,295,886126,813,483 101,397,888
Receivables 54,746 105,562
Prepayments 77 52
Long-term investmentInvestment on bond 9,724,337 9,622,757
Real estate 11,422,662 13,348,281
Other assets 96,158 -
Net asset value of collective investment trust fund 1,101 591,034
Total $ 150,467,633 $ 126,544,875
Trust Income Statement
For the Year Ended December 31, 2006
Trust incomeInterest income $ 269,883Rental income 230,468Cash dividends 284,643
Realized investment income 246,469Others 1,413Total trust income 1,032,876
Trust expenseTrust administrative expenses 32,074Maintenance expenses 1,682Insurance expenses 1,731Tax expenses 38,746
Interest expenses 285,261Service expenses 1,848OTC expenses 1,000Marketing expenses 1,659
www.banksinopac.com
81
Realized investment loss $ 89,304Others 2,442
Total trust expenses 455,747Net income before income tax 577,129Income tax expenses -
Net income after income tax $ 577,129
b. The contents of operations of the trust business under the Trust Law: Please refer to Note 1.
37. INFORMATION RELATED TO BORROWERS, GUARANTORS AND COLLATERAL PROVIDERS AS INTEREST
PARTIES
December 31, 2006
Situation of ExerciseCategory
Account
VolumeAmounts
Normal Overdue
Consumer loans (Note 1) 335 $ 196,286 196,286 -
Loans for employees’ house mortgage 471 981,855 981,855 -
Other borrowers (Note 2) 849 13,987,007 13,984,290 2,717
Guarantees 707 4,075,903 4,073,186 2,717
Collateral providers 1,624 23,963,622 23,963,622 -
December 31, 2005
Situation of ExerciseCategory
Account
VolumeAmounts
Normal Overdue
Consumer loans (Note 1) 446 302,555 302,555 -
Loans for employees’ house mortgage 501 1,195,072 1,195,072 -
Other borrowers (Note 2) 819 5,582,050 5,579,333 2,717
Guarantees 792 3,026,405 3,023,059 3,346
Collateral providers 1,508 9,808,545 9,808,545 -
Note 1: Consumer loans were regulated in the Banking Law Article 32.
Note 2: Except for consumer loans and loans for employees’ house mortgage, the credits that borrowers as interest parties.
Note 3: The interest parties mentioned above is regulated in the banking Law Article 33-1.
38. CROSS SELLING INFORMATION
For the year ended December 31, 2006, the Bank charged SinoPac Securities for $988 as marketing and opening accounts andpaid SinoPac Securities $226 as real estate loan financing under cross selling business.
For the year ended December 31, 2006 and 2005, the Bank shared the operating equipment and building with SinoPac Securitiesunder cross selling business.
Account The Bank SinoPac Securities Total Allocation Method
2006
Rentals $1,890 $1,890 $3,780 Allocated by the actual usage of floor square
2005
Rentals $2,295 $1,665 $3,960 Allocated by the actual usage of floor square
In February 2003, the Bank had contracts with SPLIA and SPPIA, respectively, for cross selling business. The contracts referto the rules of promoting cross selling business and how to allocate the related expenses to sites, personnel, and equipments andhow to calculate the related compensation. For the year ended December 31, 2006, the Bank charged SPPIA and SPLIA for
82
Financial Report
$3,990 and $2,889, respectively, as incentive rewards and charged SPLIA for $9,349 as promoting rewards under cross sellingbusiness. For the year ended December 31, 2005, the Bank charged SPPIA and SPLIA for $3,160 and $38,970, respectively,
as promoting rewards under cross selling business.
39. SEGMENT AND GEOGRAPHIC INFORMATION
The Bank engages only in banking activities as prescribed by the Banking Law and has no single customer that accounts for10% or more of the Bank’s operating revenues. Thus, no industrial and customorial information disclosure is required.
The geographic information about the Bank for the year ended December 31, 2006 is as follows:
Adjustments
Hong Kong and
Domestic United States Area Eliminations Total
Revenues from third parties $ 33,209,824 $ 545,813 $ 2,573,808 $ (166,291) $ 36,163,154
Segment income $ 561,116 $ 130,774 $ 786,861 $ - $ 1,478,751Income from equity investments - equity method 895,761
Income before income tax $ 2,374,512
Identifiable assets $904,971,497 $ 12,520,685 $ 57,287,695 $ - $974,779,877Equity investments - equity method 8,877,958
Total assets $983,657,835
The geographic information about the Bank for the year ended December 31, 2005 is as follows:
Adjustments
Hong Kong and
Domestic United States Area Eliminations Total
Revenues from third parties $ 28,033,995 $ 440,319 $ 2,176,728 $ (191,206) $ 30,132,922
Segment income $ 4,998,639 $ 262,888 $ 707,059 $ - $ 5,968,586Loss on equity investments - equity method (243,252)
Income before income tax $ 5,725,334
Identifiable assets $884,315,759 $ 15,191,405 $ 49,052,803 $ - $948,559,967
Equity investments - equity method 8,310,797
Total assets $956,870,764
40. ADDITIONAL DISCLOSURES
a. Following are the additional disclosures required by the SFB for the Bank and investees:
1) Financing provided: Table 1;
2) Endorsement/guarantee provided: Table 2;
3) Marketable securities held: Table 3;
4) Marketable securities acquired and disposed of, at costs or prices of at least NT$300 million or 10% of the issuedcapital: None;
5) Acquisition of individual real estate at costs of at least NT$300 million or 10% of the issued capital: None;
www.banksinopac.com
83
6) Disposal of individual real estate at prices of at least NT$300 million or 10% of the issued capital: None;
7) Financial asset securitization: Please refer to Note 10;
8) Allowance for service fees to related-parties amounting to at least NT$5 million: None;
9) Receivables from related parties amounting to at least NT$300 million or 10% of the issued capital: Table 4;
10) Sale of nonperforming loans amounting to at least NT$5 billion: None;
11) Other significant transactions which may affect the decisions of users of financial reports: None;
12) Names, locations, and other information of investees on which the Bank exercises significant influence: Table 5;
13) Derivative financial transactions: Except the disclosure in other footnotes, the derivative financial instruments of theBank are disclosed in Notes 6 and 32, and the derivative financial instrument transactions of Far East National Bank(“FENB”, a wholly owned subsidiary of SinoPac Bancorp, which is a wholly owned subsidiary of the Bank) aresummarized below:
FENB engages in derivative financial instrument transactions mainly for accommodating customers’ needs andmanaging its exposure positions.
FENB is exposed to credit risk if the counter-parties default on the contracts on maturity date. FENB enters intocontracts with customers that have satisfied its credit approval process and have provided the necessary collateral.Transactions are made within each customer’s credit line; guarantee deposits may be required, depending on thecustomer’s credit standing. Transactions with other banks are made within the trading limit set for each bank based
on the bank’s credit rating and its worldwide ranking. The associated credit risk has been considered in theevaluation of provision for credit losses.
As of December 31, 2005, the contract amounts (or notional amounts), credit risks and fair values of outstandingcontracts were as follows:
December 31, 2006
Contract
(Notional)
Financial Instruments Amount Credit Risk Fair Value
For the purpose of accommodating customers’needs or managing FENB’s exposures:- Sell $ 3,357 $ 101 $ 36
December 31, 2005
Contract
(Notional)
Financial Instruments Amount Credit Risk Fair Value
For the purpose of accommodating customers’needs or managing FENB’s exposures:Interest rate swap $ 32,850 $ - $ (102 )Currency swap contracts 423,420 62 62Forward contracts
- Sell 19,506 1,044 (1 )
The fair value of each contract is determined on the basis of quotations from Reuters or the Telerate InformationSystem.
The notional amounts of derivative contracts are used solely for the purpose of calculating receivables and payables toall contract parties. Thus, the notional amounts do not represent the actual cash inflows or outflows. Thepossibility that derivative financial instruments held or issued by FENB cannot be sold at reasonable prices is remote;
thus, no significant cash demand is expected.
b. Information related to investment in Mainland China: None.
84
Financial Report
www.banksinopac.com
85
Auditors' Report - consolidated
INDEPENDENT AUDITORS' REPORT
The Board of Directors and StockholdersBank SinoPac
We have audited the accompanying consolidated balance sheets of Bank SinoPac and its subsidiaries as of December 31, 2006and 2005, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the years thenended. These consolidated financial statements are the responsibility of the Bank's management. Our responsibility is toissue a report on these financial statements based on our audits.
We conducted our audits in accordance with the Rules Governing Auditing and Certification of Financial Statements of theFinancial Industry by Certified Public Accountants, Rules Governing Auditing and Certification of Financial Statements byCertified Public Accounts and auditing standards generally accepted in the Republic of China. Those rules and standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financialposition of Bank SinoPac and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cashflows for the years then ended, in conformity with Criteria Governing the Preparation of Financial Reports by Public Banks,Criteria Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Lawand Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principlesgenerally accepted in the Republic of China.
As stated in Notes 1 and 34 to the financial statements, Bank SinoPac merged with International Bank of Taipei Co., Ltd., awholly-owned subsidiary of SinoPac Financial Holding Co., Ltd., by means of share swap with Bank SinoPac as the survivingcompany. In accordance with Statement of Financial Accounting Standards Interpretation No. (91) 243 and 244 issued by theAccounting Research and Development Foundation of the ROC, the transaction is treated as reorganization and should berecorded at the book value of both entities' assets and liabilities. Also in accordance with Statement of Financial AccountingStandards Interpretation No. (95) 141, the financial statements of Bank SinoPac should be retroactively restated assuming bothentities to be merged.
As stated in Note 3 to the accompanying consolidated financial statements, effective January 1, 2006, the Bank and itssubsidiaries adopted the Statement of Financial Accounting Standards No. 34 "Accounting for Financial Instruments", No. 36"Disclosure and Presentation of Financial Instruments" and other standards amended for harmonizing with those twostandards.
February 8, 2007
The accompanying consolidated financial statements are intended only to present the financial position, results of operationsand cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and notthose of any other jurisdictions. The standards, procedures and practices to review such consolidated financial statements arethose generally accepted and applied in the Republic of China.
For the convenience of readers, the auditors' report and the accompanying consolidated financial statements have beentranslated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflictbetween the English version and the original Chinese version or any difference in the interpretation of the two versions, theChinese-language auditors' report and consolidated financial statements shall prevail.
Notice to Readers
86
Financial Report
BANK SINOPAC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
2006
Amount
2005(Restated, Note 34) %
Amount
$ 26,130,132
99,193,374
26,959,645
6,896,018
44,083,466
630,958,806
181,574,806
4,772,926
186,528
1,271,999
3,451,024
1,885,285
6,608,308
4,925,612
4,643,894
2,605,634
50,193
2,610,300
19,719
14,855,352
5,261,164
30,867
9,563,321
69,549
9,632,870
4,742,434
933,742
5,407,636
$ 1,048,080,691
$ 21,769,738
100,688,771
38,389,668
12,024,190
44,900,219
647,954,349
124,674,889
6,205,947
171,232
1,519,463
1,301,477
1,119,413
3,940,353
4,917,289
4,404,137
1,529,817
53,513
3,581,297
14,252
14,500,305
4,767,234
-
9,733,071
91,684
9,824,755
4,805,681
1,136,592
5,423,626
$ 1,021,910,010
20
( 1)
( 30)
( 43)
( 2)
( 3)
46
( 23)
9
( 16)
165
68
68
-
5
70
( 6)
( 27)
38
2
10
-
( 2)
( 24)
( 2)
( 1)
( 18)
-
3
ASSETS
CASH AND CASH EQUIVALENTS (Note 4)
DUE FROM THE CENTRAL BANK AND OTHER BANKS (Note 5)
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
(Notes 2, 3, 6 and 32)
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL (Notes 2 and 33)
ACCOUNTS, INTEREST AND OTHER RECEIVABLES, NET (Notes 2, 3, 7, 29 and 32)
DISCOUNTS AND LOANS, NET (Notes 2, 8 and 32)
AVAILABLE-FOR-SALE FINANCIAL ASSETS (Notes 2, 3, 9 and 10)
HELD-TO-MATURITY INVESTMENTS (Notes 2, 3, 11 and 32)
EQUITY INVESTMENTS - EQUITY METHOD (Notes 2 and 12)
OTHER FINANCIAL ASSETS, NET (Notes 2, 3, 13, 15 and 32)
Unquoted equity instruments
Non-active market debt instruments
Others
Other financial assets, net
PROPERTIES (Notes 2 and 14)
Cost and appreciation
Land
Buildings
Computer equipment
Transportation equipment
Office and other equipment
Leasehold improvement
Total cost
Less: Accumulated depreciation
Less: Accumulated impairment
Advances on acquisitions of equipment and construction in progress
Net properties
PROPERTIES HELD FOR LEASE, NET (Notes 2 and 15)
LONG-TERM LEASE RECEIVABLES (Note 2)
OTHER ASSETS (Notes 2, 16 and 30)
TOTAL
Note:In accordance with Statement of Financial Accounting Standards Interpretation No. (91) 243 and 244 issued by the Accounting Research and Development Foundation of the Republic of China, the merger ofBank SinoPac and International Bank of Taipei Co., Ltd. is treated as reorganization and should be recorded at the book value of both entities’ assets and liabilities. Also in accordance with Statement ofFinancial Accounting Standards Interpretation No. (95) 141, the financial statements of Bank SinoPac as of and for the year ended December 31, 2005 should been retroactively restated assuming the assetsand liabilities of International Bank of Taipei Co., Ltd. have been included at book value.
www.banksinopac.com
87
DECEMBER 31, 2006 AND 2005(In Thousands of New Taiwan Dollars, Except Par Value)
5
( 52)
( 65)
274
( 44)
6
5
( 13)
( 2)
148
5
( 14)
3
-
-( 16)
-( 16)
9-
30
( 95)-
( 30)-
( 1)
5,384
1
3
2006
Amount
2005(Restated, Note 34)
Amount
$ 81,695,339
3,947,040
389,395
3,858,707
14,653,861
29,473,232
798,933,868
31,461,961
5,736,896
3,599,573
4,880,359
4,624,972
983,255,203
45,851,972
118,2268,076,524
1788,194,928
6,280,113282,977
2,156,4908,719,580
1,890166,778
( 155,953)1,030,154
63,809,349
1,016,139
64,825,488
$ 1,048,080,691
$ 78,151,987
8,159,231
1,124,529
1,030,641
26,115,884
27,811,600
761,774,678
36,292,750
5,849,080
1,450,425
4,644,722
5,351,482
957,757,009
45,851,972
118,2269,591,498
1789,709,902
5,782,921282,977
1,657,3077,723,205
37,066-
( 221,269)1,033,595
64,134,471
18,530
64,153,001
$ 1,021,910,010
LIABILITIES AND STOCKHOLDERS' EQUITY
CALL LOANS AND DUE TO BANKS (Note 17)
SHORT-TERM BORROWINGS (Note 18)
COMMERCIAL PAPER PAYABLE (Note 19)
FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (Notes 2, 3 and 6)
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Notes 2, 32 and 33)
ACCOUNTS, INTEREST AND OTHER PAYABLES (Notes 2, 20, 27 and 29)
DEPOSITS AND REMITTANCES (Notes 21 and 30)
BANK DEBENTURES (Notes 2 and 22)
BONDS PAYABLE (Notes 2 and 23)
LONG-TERM BORROWINGS (Note 24)
OTHER FINANCIAL LIABILITIES
OTHER LIABILITIES (Notes 2, 25, 27 and 30)
Total liabilities
STOCKHOLDERS' EQUITY OF PARENT COMPANY (Notes 2, 3, 26 and 34)Capital stock, $10 par valueCapital surplus
Additional paid-in capitalCapital surplus due to mergerOther
Total capital surplusRetained earnings
Legal reserveSpecial reserveUnappropriated
Total retained earningsCumulative translation adjustmentsUnrealized gains and losses on financial instrumentsNet loss not recognized as pension costUnrealized revaluation increment on land
Total stockholders' equity of parent company
MINORITY INTEREST
Total stockholders' equity
CONTINGENCIES AND COMMITMENTS (Notes 2, 32 and 33)
TOTAL
The accompanying notes are an integral part of the consolidated financial statements.(With Deloitte & Touche audit report dated February 8, 2007)
%
88
Financial Report
BANK SINOPAC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Capital Stock
Shares in Thousands Amount (Note 26)
Capital Surplus (Notes 2and 26)Additional Paid-in
CapitalCapital surplus from
Business Combination Others Total
1,944,398
2,612,390
----
141,941
( 113,532)
-
-
-
-
4,585,197
1,972,807
2,612,390
----
-
-
-
-
-
-
-
-
-
4,585,197
$ 19,443,976
26,123,904
----
1,419,416
( 1,135,324)
-
-
-
-
$ 45,851,972
$ 19,728,068
26,123,904
----
-
-
-
-
-
-
-
-
-
$ 45,851,972
$ 125,030
-
-----
( 6,804)
-
-
-
-
$ 118,226
$ 118,226
-
----
-
-
-
-
-
-
-
-
-
$ 118,226
$ -
7,140,463
-----
-
2,451,035
-
-
-
$ 9,591,498
$ -
7,718,358
----
358,166
-
-
-
-
-
-
-
-
$ 8,076,524
$ 178
-
-----
-
-
-
-
-
$ 178
$ 178
-
----
-
-
-
-
-
-
-
-
-
$ 178
$ 125,208
7,140,463
-----
( 6,804)
2,451,035
-
-
-
$ 9,709,902
$ 118,404
7,718,358
----
358,166
-
-
-
-
-
-
-
-
$ 8,194,928
BALANCE, JANUARY 1, 2005
Retroactive adjustments for merger (Note 30)
Appropriation of 2004 earningsLegal reserveRemuneration to directors and supervisorsBonus to employeesCash dividends - $0.73 per shareStock dividends - $0.73 per share
Capital decrease and cancellation resulting from holding shares ofthe parent company
Net income for the year ended December 31, 2005
Recovery of unrealized loss on long-term equity investment
Change in minority interest
Change in translation adjustment on equity investment-equitymethod
BALANCE, DECEMBER 31, 2005
BALANCE, JANUARY 31, 2006
Retroactive adjustments for merger (Note 30)
Appropriation of 2005 earningsLegal reserveRemuneration to directors and supervisorsBonus to employeesCash dividends - $0.57 per share
Net income for the year ended December 31, 2006
Effect of accounting changes
Unrealized gains or losses on available-for-sale financial assets
Net loss not recognized as pension cost
Issuance of preferred stock
Change in adjustment on foreign-currency translations
Unappropriated earnings transferred from revaluation incrementon land
Change in minority interest
Change in translation adjustment on equity investment-equitymethod
BALANCE, DECEMBER 31, 2006
Note:In accordance with Statement of Financial Accounting Standards Interpretation No. (91) 243 and 244 issued by the Accounting Research and Development Foundation of the Republic of China, the merger of Bank SinoPac and InternationalBank of Taipei Co., Ltd. is treated as reorganization and should be recorded at the book value of both entities’ assets and liabilities. Also in accordance with Statement of Financial Accounting Standards Interpretation No. (95) 141, thefinancial statements of Bank SinoPac as of and for the year ended December 31, 2005 should be retroactively restated assuming the assets and liabilities of International Bank of Taipei Co., Ltd. have be included at book value.
www.banksinopac.com
89
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (FOR THE YEARENDED DECEMBER 31, 2005 WAS RESTATED, PLEASE REFER TO Note 34)(In Thousands of New Taiwan Dollars, Except Dividends Per Share)
Retained Earnings (Note 26) Cumulative TranslationAdjustments (Note 2)
Unrealized Loss onLong-term Equity
Investment (Note 2)
Unrealized Gains(Loss) on FinancialInstrument (Nete 2)
Net loss Not Recognizedas Pension Cost(Notes 2 and 29)
UnrealizedRevaluation
Increment on Land
TotalStockholder' EquityLegal Reserve Special Reserve Unappropriated Total
MinorityInterest
$ 4,497,477
-
1,285,444----
-
-
-
-
-
$ 5,782,921
$ 5,782,921
-
497,192---
-
-
-
-
-
-
-
-
-
$ 6,280,113
$ 282,977
-
-----
-
-
-
-
-
$ 282,977
$ 282,977
-
----
-
-
-
-
-
-
-
-
-
$ 282,977
$ 4,180,069
-
( 1,285,444)( 26,847)( 28,946)( 1,419,416)( 1,419,416)
( 459,857)
2,117,164
-
-
-
$ 1,657,307
$ 1,657,307
-
( 497,192)( 32,000)( 11,601)( 1,116,514)
2,153,049
-
-
-
-
-
3,441
-
-
$ 2,156,490
$ 8,960,523
-
-( 26,847)( 28,946)( 1,419,416)( 1,419,416)
( 459,857)
2,117,164
-
-
-
$ 7,723,205
$ 7,723,205
-
-( 32,000)( 11,601)( 1,116,514)
2,153,049
-
-
-
-
-
3,441
-
-
$ 8,719,580
$( 31,850)
12,527
-----
-
-
-
-
56,389
$ 37,066
$ 24,539
13,386
----
-
-
-
-
-
( 5,146)
-
-
( 30,889)
$ 1,890
$( 264,260)
-
-----
-
-
264,260
-
-
$ -
$ -
-
----
-
-
-
-
-
-
-
-
-
$ -
$ -
-
-----
-
-
-
-
-
$ -
$ -
155,072
----
-
( 165)
11,871
-
-
-
-
-
-
$ 166,778
$ -
( 221,269)
-----
-
-
-
-
-
$( 221,269)
$ -
( 221,269)
----
-
-
-
65,316
-
-
-
-
-
$ (155,953)
$ -
1,033,595
-----
-
-
-
-
-
$ 1,033,595
$ -
1,033,595
----
-
-
-
-
-
-
( 3,441)
-
-
$ 1,030,154
$ 93,862
-
-----
-
-
2,707
( 78,039)
-
$ 18,530
$ -
18,530
----
( 2,211)
-
-
-
1,000,000
-
-
( 180)
-
$ 1,016,139
$ 28,327,459
34,089,220
-( 26,847)( 28,946)( 1,419,416)
-
( 1,601,985)
4,568,199
266,967
( 78,039)
56,389
$ 64,153,001
$ 27,594,216
34,841,576
-( 32,000)( 11,601)( 1,116,514)
2,509,004
( 165)
11,871
65,316
1,000,000
( 5,146)
-
( 180)
( 30,889)
$ 64,825,488
The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated February 8, 2007)
90
Financial Report
Pretax AfterTax
$ 0.64 $ 0.55
$ 0.61 $ 0.52
BANK SINOPAC AND SUBSIDIARIESFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005(In Thousands of New Taiwan Dollars, Except Earnings Per Share)CONSOLIDATED STATEMENTS OF INCOME
2006
Amount
2005(Restated, Note 34) %
Amount
$ 40,772,426
23,647,941
17,124,485
3,287,671
1,281,985398,190
-
14,984 479,568
( 145,503)54,687
( 1,377,095)1,192,207
22,311,179
7,364,763
7,344,3471,052,2543,890,736
12,287,337
2,659,079
449,370
2,209,709
299,295
$ 2,509,004
$ 2,511,215( 2,211)$ 2,509,004
$ 33,975,222
17,220,570
16,754,652
4,300,959
( 530,527)157,824
1,469
( 27,883)1,857,625
( 389,546)( 14,516)( 723,819)
1,220,400
22,606,638
4,122,694
6,829,2301,100,4994,584,801
12,514,530
5,969,414
1,398,508
4,570,906
-
$ 4,570,906
$ 4,568,1992,707
$ 4,570,906
20
37
2
( 24)
342152
( 100)
154( 74)( 63)
47790
( 2)
( 1)
79
8 ( 4)( 15)
( 2)
( 55)
( 68)
( 52)
-
( 45)
( 45)( 182)( 45)
INTEREST REVENUE (Notes 2, 3 and 32)
INTEREST EXPENSE (Notes 2, 3 and 32)
NET INTEREST
NET REVENUES OTHER THAN INTERESTCommissions and fee revenues, net (Notes 2, 27 and 32)Gains (losses) from financial assets and liabilities at fair value through
profit or loss (Notes 2 and 3)Realized gains from available-for-sale financial assets (Note 3)Realized gains from held-to-maturity investments (Note 3)Income (losses) from equity investments - equity method,net (Notes 2
and 12)Foreign exchange gains, net (Note 2)Impairment losses (Note 2)Gains (losses) from unquoted equity instruments (Notes 2, 3 and 13)Other provision-banking industry (Note 2)Other net revenues (Note 2)
Total net revenues
PROVISION FOR LOAN LOSSES (Notes 2 and 8)
OPERATING EXPENSES (Note 2)Personnel expenses (Note 28)Depreciation and amortization (Note 28)Others
Total operating expenses
INCOME BEFORE INCOME TAX
INCOME TAX EXPENSE (Notes 2 and 30)
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES
CUMULATIVE EFFECT OF ACCOUNTING CHANGES (NET OF TAX BENEFIT $16,669) (Note 3)
CONSOLIDATED INCOME
ATTRIBUTABLE TOStockholders of the parent companyMinority interest
EARNINGS PER SHARE (Note 31)Basic earnings per shareDiluted earnings per share
Note :In accordance with Statement of Financial Accounting Standards Interpretation No. (91) 243 and 244 issued by the Accounting Research and Development Foundation of the Republic of China, the merger of Bank SinoPac andInternational Bank of Taipei Co., Ltd. is treated as reorganization and should be recorded at the book value of both entities’ assets and liabilities. Also in accordance with Statement of Financial Accounting Standards InterpretationNo. (95) 141, the financial statements of Bank SinoPac as of and for the year ended December 31, 2005 should been retroactively restated assuming the assets and liabilities of International Bank of Taipei Co., Ltd. have beenincluded at book value. Thus, the net incomes of Bank SinoPac for the years ended 2006 and 2005 included the net income of International Bank of Taipei Co., Ltd. for the years ended 2006 and 2005 amounting to $358,166 and$2,451,035, respectively.
The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated February 8, 2007)
Pretax AfterTax
$ 1.28 $ 0.98
$ 1.22 $ 0.93
www.banksinopac.com
91
BANK SINOPAC AND SUBSIDIARIESFOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005(In Thousands of New Taiwan Dollars)CONSOLIDATED STATEMENTS OF CASH FLOWS
20062005
(Restated, Note 34)
$ 2,509,004( 299,295)
1,044,8668,724,688
145,503( 1,270,968)
11,2047,533
( 54,687)( 974)( 14,984)( 152,427)
152,252( 46,464)
12,179,7502,377,852
--
697,146393,179
26,403,178
1,495,3975,128,1721,270,7509,625,800
127,766( 200,555)( 2,146,869) ( 56,739,946)( 690,758)
2,089,161-
487,801-
( 487,621)11,578
( 410,167)93,301
( 85,613)101,521
( 297,021)( 229,851)
( 40,857,154)
3,543,352 ( 4,191,402)( 735,134)( 11,462,023)
37,159,1902,161,848
-( 5,000,000)( 65,720)
29,234( 594,590)
1,000,000( 43,601)( 1,116,514)( 1,873,140)
18,811,500
4,357,5242,870
21,769,738$ 26,130,132
$ 22,702,959$ 1,117,324
$ 4,570,906-
1,095,9834,846,155
389,546561,260
20,578( 100,658)
14,516( 11,001)
27,883( 246,963)
106,110198,123
( 1,814,570)( 1,986,961)
23,3481,571
2,049,910128,347
9,874,083
( 44,456,506)9,684,966
808,825( 76,725,452)( 185,597)( 107,797)( 839,957)
29,231,764( 703,439)
1,833,31079,586
603,786460
( 805,959)248,979
( 331,233)331,175
( 45,035)293,431
6,051302,481
( 80,776,161)
( 5,705,140)( 2,434,627)
86,338( 12,426,695)
91,038,489762,446
3,000,000-
( 67,283)125,473
4,465,097-
( 51,747)( 1,419,416)( 2,223,311)
75,149,624
4,247,546( 19,946)
17,542,138$ 21,769,738
$ 15,890,730$ 2,399,989
CASH FLOWS FROM OPERATING ACTIVITIESConsolidated incomeCumulative effect of accounting changesAdjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortizationProvision for credit and trading lossesAsset impairmentUnrealized (gains) losses on financial assets and liabilities at fair value through profit or lossAmortization on discount of held-to-maturity financial assetsLoss (gain) on disposal of properties and leased assets, net(Gain) loss on sale of unquoted equity instrumentsGain on disposal of collateral assumed, net(Income) losses from equity investments - equity method -netDeferred income taxAccrued pension costForeign exchange (gains) losses on bond payableDecrease (increase) in held for trading financial assetsIncrease (decrease) in held for trading financial liabilitiesCash dividends from equity investment - equity methodAdvances on acquisition of equipment expensedDecrease in accounts, interest and other receivablesIncrease in accounts, interest and other payables
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIESDecrease (increase) in due from the Central Bank and other banksDecrease in securities purchased under agreements to resellDecrease in financial assets designated at fair value through profit or lossDecrease (increase) in discounts and loansDecrease (increase) in long-term lease and installment receivablesIncrease of unquoted equity investmentsIncrease in non-active market debt instruments(Increase) decrease in available-for-sale financial assetsIncrease in held-to-maturity financial assetsProceeds from held-to-maturity financial assets maturedDecrease in equity investment - equity methodProceeds from sale of unquoted equity instrumentsCapital refund from unquoted equity investmentAcquisition of propertiesProceeds from sale of propertiesAcquisition of leased assetsProceeds from sale of leased assetsAcquisition of collateral assumedProceeds from sale of collateral assumed(Increase) decrease in other financial assets(Increase) decrease in other assets
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIESIncrease (decrease) in call loans and due to banksDecrease in short-term borrowings(Decrease) increase in commercial paper payableDecrease in securities sold under agreements to repurchaseIncrease in deposits and remittancesIncrease in long-term borrowingsIssuance of bank debenturePayment of bank debentureDecrease in bond payableIncrease in other financial liabilitiesIncrease in other liabilitiesPreferred stock issuance from subsidiaryRemuneration to directors and supervisors and bonus to employeesCash dividends paidRetroactive adjustment for merger
Net cash provided by financing activities
INCREASE IN CASH AND CASH EQUIVALENTSEFFECTS OF CHANGES IN EXCHANGE RATECASH AND CASH EQUIVALENTS, BEGINNING OF PERIODCASH AND CASH EQUIVALENTS, END OF PERIODSUPPLEMENTAL INFORMATION
Interest paid
Income tax paid
Note: In accordance with Statement of Financial Accounting Standards Interpretation No. (91) 243 and 244 issued by the Accounting Research and Development Foundation of the Republic of China, the merger of Bank SinoPac andInternational Bank of Taipei Co., Ltd. is treated as reorganization and should be recorded at the book value of both entities’ assets and liabilities. Also in accordance with Statement of Financial Accounting Standards InterpretationNo. (95) 141, the financial statements of Bank SinoPac as of and for the year ended December 31, 2005 should be retroactively restated assuming the assets and liabilities of International Bank of Taipei Co., Ltd. have been includedat book value.
The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated February 8, 2007)
BANK SINOPAC AND SUBSIDIARIES
1. ORGANIZATION AND OPERATIONS
Bank SinoPac (the “Bank”) obtained government approval to incorporate on August 8, 1991 and started operations on January28, 1992. The Bank engages in commercial banking, trust, and established International Division and Offshore Banking Unit
(OBU) to manage foreign exchange operations as allowed under the Banking Law.
As of December 31, 2006, the Bank’s operating units included Banking, Trust, International Division of the Head Office, anOffshore Banking Unit (OBU), 128 domestic branches, 3 overseas branches, 2 overseas sub-branches and 1 overseasrepresentative office.
The operations of the Bank’s Trust Department consist of: (1) planning, managing and operating of trust business; and (2)custody of non-discretionary trust fund in domestic and overseas securities and mutual funds. These operations are governed
by the Banking Law and the Trust Law.
Under the Financial Holding Company Act, the Bank, SinoPac Securities Corporation and SinoPac Securities Co., Ltd. (the“SPS”) established SinoPac Financial Holdings Company Limited (the “SPH”), a financial holding company. The partiesestablished the holding company to maximize the benefit of their combined capital, pool their business channels, fully harnessthe synergy of their diversified business operations and establish one of the most competitive organizations in the Pacific Rim.Since May 9, 2002, the effective date of the shares swap, the Bank has become an unlisted wholly owned subsidiary of SPH.
On July 21, 2006, the boards of directors of the Bank resolved a merger with International Bank of Taipei Co., Ltd. (IBT) inorder to boost the operating performance through cross selling of pooling business channels, as well as harnessing the synergyof integration of diversified business operations. Under this merger, the Bank will acquire the assets and liabilities of IBTthrough a share swap at ratio of 1.175 shares of the Bank to swap for 1 share of IBT, on which the Bank will be the survivingentity and IBT will be the company ceasing to exist. The effective date of the share swap and merger’s recording date wasNovember 13, 2006.
The boards of directors of IBT resolved to transfer credit card business and related assets and liabilities to SinoPac Card
Corporation (formerly known as AnShin Card Services) on May 8, 2006. The transaction has been approved by the authoritieson June 22, 2006 and the assets have been transferred using the book value of $5,171,080 on August 4, 2006. Relatedinformation please refer to Note 32.
On August 15, 1997, Bank SinoPac acquired Far East National Bank (FENB), through SinoPac Bancorp, by purchasing 100%of its shares. FENB was established in Los Angeles in 1974. It is a commercial bank engaging mainly in the business ofdeposit taking and lending. As of December 31, 2006, FENB had 15 branches in Los Angeles and San Francisco areas, Ho ChiMinh City branch and Beijing representative office. It also had a wholly-owned subsidiary - Far East Capital Corporation.
SinoPac Leasing Corporation (“SinoPac Leasing”) obtained government approval to be incorporated by Bank SinoPac onSeptember 2, 1997. SinoPac Leasing mainly leases out land, buildings, transportation equipment and machineries and alsoengages in the factoring business.
Grand Capital International Limited (“Grand Capital”) is a wholly owned subsidiary of SinoPac Leasing and was incorporatedin British Virgin Islands in January 1998. It provides lease financing and other financing activities.
SinoPac Capital Limited (“SinoPac Capital”) was established in Hong Kong in 1999. It mainly engages in the business of
lending and financing. Its 3 subsidiaries - SinoPac Capital (B.V.I.) Ltd. (incorporated in British Virgin Island, 1999), SinoPacInsurance Brokers Ltd. (incorporated in Hong Kong, 2004), and SinoPac (Hong Kong) Naminess Ltd. (incorporated in HongKong, 2004 and liquidated in 2005) mainly engage in financial advisory, insurance brokerage and custody securities business.
SinoPac Life Insurance Agent Co., Ltd. (“SinoPac Life Insurance Agent”) and IBT Life Insurance Agent Co., Ltd. (“IBT LifeInsurance Agent”) were incorporated on July 25, 2000 and March 21, 2001, respectively, in the Republic of China (R.O.C.).As their company names indicate, they are life insurance agents. On August 28, 2006, the boards of directors of SinoPac LifeInsurance Agent and IBT Life Insurance Agent resolved to merge these two companies, with IBT Life Insurance Agent as the
surviving entity. The merged entity is renamed as SinoPac Life Insurance Agent. The effective merger date is on November13, 2006.
92
Financial Report
BANK SINOPAC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (FOR THE YEAR ENDED DECEMBER 31, 2005 WAS RESTATED, PLEASE REFER TO Note 34)(In Thousands of New Taiwan Dollars, Unless Otherwise Stated)
SinoPac Property Insurance Agent Co., Ltd. (“SinoPac Property Insurance Agent”) and IBT Property Insurance Agent Co., Ltd.(“IBT Property Insurance Agent”) were incorporated on July 24, 2000 and May 28, 2001, respectively in the R.O.C. As their
company names indicate, they are property insurance agents. On August 28, 2006, the boards of directors of SinoPac PropertyInsurance Agent and IBT Property Insurance Agent resolved to merge these two companies, with IBT Property Insurance Agentas the surviving entity. The merged entity is renamed as SinoPac Property Insurance Agent. The effective merger date is onNovember 13, 2006.
As of December 31, 2006 and 2005, the Bank and its subsidiaries had a total of 5,215 and 5,557 employees, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Bank and its subsidiaries, SinoPac Bancorp, as consolidatedwith SinoPac Bancorp and its subsidiaries SinoPac Financial Services (USA) Ltd. and FENB alone with its subsidiaries,SinoPac Leasing Corporation consolidated with Grand Capital International Limited (SinoPac Leasing and its subsidiary,thereafter), SinoPac Capital Limited consolidated with SinoPac Capital (B.V.I.) Ltd., SinoPac Insurance Brokers Ltd., SinoPac
(Hong Kong) Naniness Ltd. (completed the legal dissolution process before June 2006), Cyberpac Holding Ltd. (completed thelegal dissolution process before June 2006), Shanghai International Asset Management (Hong Kong) Co., Ltd., PinnacleInvestment Management Ltd. and RSP Information Service Company Limited (SinoPac Capital Limited and its subsidiaries,thereafter), SinoPac Life Insurance Agent and SinoPac Property Insurance Agent. All significant inter-company transactionsand balances have been eliminated for consolidation purpose.
In order to conform the reorganization of parent company, SPH, and to simplify the Group’s framework of investment, SinoPacCapital and its subsidiaries transferred Allstar Venture Ltd. (B.V.I.), Wal Tech International Corporation and Intellisys Corp. to
SinoPac Venture Capital Co., Ltd. (SinoPac Venture Capital), the subsidiary of SPH in 2005. Under an explanation issued bythe Accounting Research and Development Foundation of the Republic of China (the “ARDF of ROC”), the aforementionedtransactions were using the investees’ net worth as transfer price.
The subsidiary of the Bank, SinoPac Financial Consulting Co., Ltd., was not included in the consolidated entities, since it isimmaterial to the consolidated financial statements of the Bank and subsidiaries. The information regarding consolidatedentities were summarized and listed in table 6, and the subsidiaries excluded from consolidated entities were summarized andlisted in table 7.
The Bank and its subsidiaries’ consolidated financial statements were prepared in conformity with the Criteria Governing thePreparation of Financial Reports by Public Banks, Criteria Governing the Preparation of Financial Reports by Securities Issuers,the Business Accounting Law, Guidelines Governing Business Accounting and accounting principles generally accepted in theR.O.C. In determining fair value of certain financial instruments, the allowance for credit losses, depreciation for fixed assetsand assets held for leasing, pension, income tax, amortization of deferred charges, losses upon suspended lawsuit and provisionfor losses on guarantees, the Bank and its subsidiaries need to make estimates based on judgment at available information.Actual results could differ from those estimates based on judgment at available information. Since the operating cycle couldnot be reasonably identified in the banking industry, accounts included in the Bank and its subsidiaries’ consolidated financial
statements were not classified as current or non-current. Nevertheless, accounts were properly categorized according to thenature of each account, and sequenced by their liquidity. Please refer to Note 36 for maturity analysis of assets and liabilities.Significant accounting policies of the Bank and its subsidiaries are summarized below:
Financial Instruments at Fair Value Through Profit or Loss
Financial instruments at fair value through profit or loss consist of any financial asset and liability that is designated on initialrecognition as one to be measured at fair value with fair value changes in profit or loss and financial assets and liabilities which
should be classified as held for trading. Those instruments are required to be recognized at fair value and to be measured atfair value through profit or loss on the balance sheet date. The Bank and its subsidiaries use trade date accounting whenrecording transaction.
Derivative instruments transaction which do not meet the specified criteria to obtain hedge accounting treatment are classified asfinancial assets or liabilities held for trading when the fair value of a derivative is positive, it is carried as an asset and whilenegative as a liability.
Fair value are determined as follows: (a) listed stocks and GreTai Securities Market (the “GTSM”) stocks - closing prices asof the balance sheet date; (b) beneficiary certificates (open-end fund) - net asset values as of the balance sheet dates; (c) bonds -period-end reference prices published by the GTSM or Bloomberg; and (d) for the financial instruments without active markets,fair value is determined using valuation techniques.
www.banksinopac.com
93
Any financial asset and any financial liability may be designated as financial instruments at fair value through profit or loss toeliminate measurement anomalies for items that provide a natural offset of each other. Besides, the set of financial assets,
financial liabilities or combined by both of them managed according to the Bank’s risk management policies and investmentstrategies will be designated as financial instruments at fair value through profit or loss.
Repurchase and Reverse Repurchase Transactions
Securities purchased under agreement to resell (reverse repurchase) agreements and securities sold under agreements torepurchase are generally treated as collateralized financing transactions. Interest earned on reverse repurchase agreements andinterest incurred on repurchase agreements is recognized as interest income or interest expense over the life of each agreement.
Available-for-sale Financial Assets
Available-for-sale financial assets are carried at fair value. Unrealized gains or losses on available-for-sale financial assets arereported in equity attribute to the shareholders. On disposal of an available-for-sale financial asset, the accumulated,unrealized gain or loss in equity attributable to the shareholders is transferred to net profit and loss for the period. The Bankand its subsidiaries use trade date accounting when recording available-for-sale portfolio transactions.
Dividend income from equity securities is recognized on ex-dividend dates. Cash dividends received a year after investmentacquisition are recognized as income, otherwise as a reduction of the carrying value of the investments. The effective interestrate method of amortization and accretion is used, the straight line method is used if there is no significant difference.
If an available-for-sale financial asset is determined to be impaired, the accumulative unrealized loss previously recognized inequity attributable to the shareholders is recognized as impairment loss and reported in income statement. For equityinvestments, loss reversal is adjusted to the equity attributable to the shareholders. For debt investments, loss reversal iscredited to current income.
Nonperforming Loans
Under guidelines issued by the Banking Bureau of Financial Supervisory Commission (the Banking Bureau), the balance ofloans and other credits extended by the Bank and its subsidiaries and the related accrued interest thereon are classified asnonperforming when the loan is overdue and shall be authorized by a resolution passed by the board of directors.
Nonperforming loans reclassified from loans are classified as discounts and loans; otherwise, are classified as other financial
assets.
Allowance for Credit Losses and Provision for Losses on Guarantees
In determining the allowance for credit losses and provision for losses on guarantees, the Bank and its subsidiaries assess thecollectibility on the balances of discounts and loans, accounts receivables, interest receivables, other receivables, leasereceivables, nonperforming loans and other financial assets, as well as guarantees and acceptances as of the balance sheet dates.
Pursuant to “Regulations Governing the Procedures for Banking Institutions to Evaluate Assets and Deal with
Non-performing/Non-accrual Loans” (the “Regulations”) issued by the Banking Bureau, the Bank evaluates credit losses on thebasis of the estimated collectibility. In accordance with the Regulations stated above, the minimum provision for credit lossesshould not be less than the aggregate of 50% of the doubtful credits and 100% of the unrecoverable credits. Since July 2005,the Regulations amended the classification of loan assets, which divided the loan assets into different class subjects to assets thatrequire special mention, assets that are substandard, assets that are doubtful, and assets for which there is loss. The minimumallowance for credit losses and provision for losses on guarantees for the aforementioned classes should be 2%, 10%, 50% and100% of outstanding credits, respectively. The amendments on the classification of loan assets have no significant impact onthe Bank’s financial statements.
Write-offs of loans falling under the Banking Bureau guidelines, upon approval by the board of directors, are offset against therecorded allowance for credit losses.
Held-to-maturity Investments
Held-to-maturity investments are carried at amortized cost, which are valued by interest method, otherwise use the straight linemethod if there is no significant difference. At initial recognition, the costs of the financial assets are valued at fair value of the
financial assets together with acquire or issue costs. The net profit and loss of the held-to-maturity investments for the periodare reported in to income statement when on disposal, impairment or amortization. The Bank and its subsidiaries use tradedate accounting when recording transaction.
94
Financial Report
If a held-to-maturity investment is determined to be impaired, the impairment loss is recognized and reported in incomestatement. Loss reversal is credited to current income and should not be more than the carrying amount had the impairment not
been recognized.
Equity Investments - Equity Method
Equity investments are accounted for by the equity method if the Bank and its subsidiaries have significant influence over theinvestees. Under this method, investments are stated at cost plus (or minus) a proportionate share in net earnings (losses) orchanges in net worth of the investees. Goodwill is not amortized but test annually for impairment since January 1, 2006.Until December 31, 2005, any difference between the acquisition cost and the equity in the investee is amortized over 15 years.
Stock dividends result only in an increase in number of shares and are not recognized as investment income.
If an investee issues new shares and the Bank and its subsidiaries do not acquire new shares in proportion to its current equity inthe investee, the resulting increase of the Bank and its subsidiaries’ equity in the investee’s net asset is credited to capital surplus.Any decrease of the Bank and its subsidiaries’ equity in the investee’s net asset is debited to capital surplus. If capital surplusis not enough for the debiting purpose, the remaining is debited to unappropriated retained earnings.
Financial Asset Securitization
Under the “Regulations for Financial Asset Securitization”, the Bank securitized part of its enterprise loans and entrusted thoseloans to the commissioned organization for the issuance of the related beneficiary certificates. Thus, the Bank derecognizesthe loans and records gain or loss because the control of contractual rights - except for subordinated retained interests for creditenhancement, which were reclassified as available-for-sale financial assets - on the loans has been surrendered and transferred toa special purpose trustee.
The gain or loss on the sale of the loans is the difference between the proceeds and carrying amount of the loans. The previous
carrying amount of the loans should be allocated by applying the ratios of the retained subordinated beneficiary certificates andthe part sold to their fair values on the date of sale. Because quotes are not available for loans and retained subordinatedbeneficiary certificates, the Bank estimates fair value at the present value of expected future cash flows, using management’skey assumptions on credit losses and discount rates commensurate to the risks involved.
Subordinated beneficiary certificates - retained interest of securitization are accounted for as available-for-sale financial assets.Interest revenue is recorded when received. The Bank evaluates retained interests by estimating present value of expectedfuture cash flows, the difference will be recognized under stockholders’ equity. If the substantive period the impairment is
obviously related to the subject occurred after the recognition of impairment, the difference will be reversed and recognized ascurrent income or loss. However, the book value with the reversal amount must not exceed the amortized cost withoutrecognizing the loss.
Properties and Non-operating Assets
Properties are stated at cost less accumulated depreciation. Major renewals and betterments are capitalized, while repairs andmaintenance are expensed as incurred.
Upon sale or disposal of properties, their cost and related accumulated depreciation are removed from the accounts. Anyresulting gain (loss) is credited (charged) to current income.
Depreciation is calculated by the straight-line method on the basis of service lives initially estimated as follows: buildings, 5 to60 years; computer equipment, 3 to 5 years; transportation equipment, 5 to 8 years; office and other equipment, 3 to 15 years;and leasehold improvement, 4 to 5 years. Depreciation on revalued properly is computed on the basis of their remaining usefullives at the time of the revaluation. For assets still in use beyond their original estimated service lives, further depreciation iscalculated on the basis of any remaining salvage value and the estimated additional service lives.
Deferred Charges
The computer software and other deferred charges (included in other assets) are amortized on the straight-line basis over 3 to 5years.
Asset Impairment
The Bank and its subsidiaries began applying ROC Statement of Financial Accounting Standards (SFAS) No. 35, “Accountingfor Asset Impairment,” on January 1, 2005, which requires that cash-generating units (CGUs) and certain assets, includinginvestments accounted for by the equity method, properties, goodwill, etc., be subject to an impairment audit.
www.banksinopac.com
95
SFAS No. 35 requires the impairment audit on long-term investments accounted for by the equity method and properties to bemade on each balance sheet date. If assets or CGUs are deemed impaired, then the Bank and its subsidiaries must calculate
their recoverable amounts. An impairment loss should be recognized whenever the recoverable amount of the assets or theCGU is below the carrying amount, and this impairment loss either is charged to accumulated impairment or reduces thecarrying amount of the assets or CGUs directly. After the recognition of an impairment loss, the depreciation (amortization)should be adjusted in future periods by the revised asset/CGUs carrying amount (net of accumulated impairment), less itssalvage value, on a systematic basis over its remaining service life. If asset impairment loss (excluding goodwill) is reversed,the increase in the carrying amount resulting from reversal is credited to current income. However, loss reversal should not bemore than the carrying amount (net of depreciation) had the impairment not been recognized. A reversal of an impairment losson a revalued asset is credited directly to capital surplus from revaluation under the heading capital surplus from revaluation.
However, to the extent that an impairment loss on the same revalued asset was previously recognized as profit or loss, a reversalof that impairment loss is also recognized as profit or loss.
Goodwill is tested for impairment annually, or more frequently if events or changes in circumstance indicate goodwillimpairment. Impairment is recorded if the book value exceeds value in use. The increase in the recoverable amount ofgoodwill in the period following the recognition of an impairment loss is likely to be an increase in internally generatedgoodwill rather than the reversal of the impairment loss recognized for the acquired goodwill. Thus, reversal of impairmentloss on goodwill is prohibited.
Collaterals Assumed
Collaterals assumed are recorded at cost (included in other assets) and revalued at the lower of cost or net fair value on thebalance sheet dates, and resulting loss is charged to current income.
Other Financial Assets
Non-active market debt instruments are those which do not have a quoted market price in an active market, and whose fair valuecannot be reliably measured. Non-active market debt instruments are carried at amortized cost. The accounting treatment ofnon-active market debt instruments is similar to the one of held-to maturity investments but there’s no prohibition on sale ofnon-active market debt instruments.
Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot bereliably measure, are measured at cost. If there is objective evidence that a financial asset is impaired, an impairment loss isrecognized and reversal of impairment loss is prohibited.
Amortization of Bond Issuance Cost
The direct and necessary costs (included in other assets) related to the Euro-convertible bonds issued before December 31, 2005are amortized using the straight-line method and recognized as issuance expenses over the period from its issuance date to theexpiration date of the put option.
Bonds Payable
The Euro-convertible bonds issued before December 31, 2005 were recognized as liabilities by its issued price. Under thebook value method applied for the conversion of Euro-convertible bonds, the carrying value, interest premium and the relatedissuance costs were converted into capital stocks in the amount of face value, while the remaining amount were recorded intocapital surplus on the conversion date.
Upon repurchase of the Euro convertible bonds, the face amount plus the premium and bond issuance expense accrued to thedate of repurchase are removed from the accounts, and any resulting gain or loss is credited or charged to income.
Derivative Financial Instruments
a. Foreign exchange forward
Foreign-currency assets and liabilities arising from forward exchange contracts, which are mainly for accommodatingcustomers’ needs or managing the Bank and its subsidiaries’ currency positions, are recorded at the contracted forwardrates. Gains or losses arising from the differences between the contracted forward rates and spot rates on settlement arecredited or charged to current income. Contracts outstanding on the balance sheet dates are measured at fair value
through profit or loss.
96
Financial Report
b. Forward rate agreements
Forward rate agreements, which are mainly for accommodating customers’ needs or managing the Bank and itssubsidiaries’ interest rate positions, are recorded by memorandum entries at the contract dates. Gains or losses arisingfrom the differences between the contracted interest rates and actual interest rates upon settlement are credited or chargedto current income. On balance sheet dates, outstanding contracts are measured at fair value through profit or loss.
c. Currency swaps
Foreign-currency spot-position assets or liabilities arising from currency swaps, which are mainly for accommodating
customers’ needs or managing the Bank and its subsidiaries’ currency positions, are recorded at spot rates when thetransactions occur; while corresponding forward-position assets or liabilities are recorded at the contracted forward rates,with receivables netted against the related payables. The interest part of swap points is amortized during the contractperiod. On balance sheet dates, outstanding contracts are measured at fair value through profit or loss.
d. Cross-currency swaps
Cross-currency swaps, which are for the purposes of accommodating customers’ needs or managing the Bank and its
subsidiaries’ exposures, are marked to market on the balance sheet dates. The interest received or paid at each settlementdate is recognized as interest income or expense, which is credited or charged to current income. On balance sheet dates,outstanding contracts are measured at fair value through profit or loss.
e. Options
Options bought and/or held and options written, which are mainly for accommodating customers’ needs or managing theBank and its subsidiaries’ currency positions, are recorded as assets and liabilities when the transactions occur. These
instruments are marked to market as of the balance sheet dates. The carrying amounts of the instruments, which arerecorded either as assets or liabilities, are charged to income when they are not exercised. Gains or losses on the exerciseof options are also included in current income.
f. Interest rate swaps
Interest rate swaps, which do not involve exchanges of the notional principals, are not recognized as either assets and/orliabilities on the contract dates. The swaps are entered into for accommodating customers’ needs or managing the Bank
and its subsidiaries’ interest rate positions. The interest received or paid at each settlement date is recognized as interestincome or expense. These instruments are marked to market on the balance sheet dates.
g. Asset swaps
Asset swaps involve exchanging the fixed interest of convertible bonds or fixed rate notes for floating interest. In addition,asset swaps involve exchanging the fixed or floating interest of credit link notes for floating or fixed interest. Thesetransactions are recorded by memorandum entries at the contract dates. Net interest on each settlement is recorded ascurrent income or expense. On balance sheet dates, outstanding contracts are measured at fair value through profit or loss.
h. Futures
Margin deposits paid by the Bank and its subsidiaries for interest rate futures contracts entered into for trading purpose arerecognized as assets. Gains or losses resulting from marking to market and from the settlement of the interest rate futurescontracts are classified as realized or unrealized gains or losses depending on whether the gains or losses had been realized.The gains and losses are included in current income.
i. Credit default swaps
Credit default swaps involve taking credit the risk of denominated bonds and notes. Such transactions are recorded bymemorandum entries at the contract dates. The premium received by the Bank and its subsidiaries for a credit defaultswap contract on each settlement is recorded as current income by the accrual method. On balance sheet dates,outstanding contracts are measured at fair value through profit or loss.
j. Commodity-linked and equity-linked interest rate swaps and credit-linked
swaps (miscellaneous swap contracts)
Commodity-linked and equity-linked interest rate swaps and credit-linked swaps, which do not involve exchanges ofnotional principals, are recorded by memorandum entries at the contract dates. The gains and losses resulting from the
www.banksinopac.com
97
swapped-in and swapped-out are included in current income on the settlement dates. On balance sheet dates, outstandingcontracts are measured at fair value through profit or loss.
Recognition of Interest Revenue and Service Fees
Interest revenue on loans is recorded by the accrual method. No interest revenue is recognized in the accompanying financialstatements on loans and other credits extended by the Bank and its subsidiaries that are classified as nonperforming loans. Theinterest revenue on those loans/credits is recognized upon collection.
Under the Ministry of Finance (MOF) regulations, the interest revenue on credits in which agreements have been reached to
extend their maturities is recognized upon collection.
Service fees are recorded as revenue upon receipt or substantial completion of activities involved in the earnings process.
Pension
FENB, SinoPac Leasing (before June 30, 2005) and its subsidiary and SinoPac Capital Limited and its subsidiaries recognizepension expense and make contributions in the specified ratio of employee salaries to pension fund, according to their defined
benefit pension plans. Pension expense of SinoPac Leasing (since July 1, 2005) and the Bank under defined benefit pensionplan is determined on the basic of actuarial calculations. Pension under defined contribution pension plan is expensed duringthe period when the employees rendered their services.
Income Tax
Inter-period income tax allocation is applied, in which tax effects of deductible temporary differences unused loss carryforwardand unused investment tax credits are recognized as deferred income tax assets, and those of taxable temporary differences are
recognized as deferred income tax liabilities. Valuation allowance is provided for deferred income tax assets that are notcertain to be realized.
Tax credits for acquisitions of equipment or technology, research and development expenditures, personnel trainingexpenditures and acquisition of equity investments are recognized as reduction of current income tax.
Interest income from short-term bills has been taxed separately and recorded as tax expense. Adjustments of prior years’ taxliabilities are included in the current year’s tax expense.
Income tax (10%) on unappropriated earnings after January 1, 1998 is recorded as income tax in the year when the stockholdersresolve the appropriation of the earnings.
SPH adopted the linked-tax system for income tax filings with its qualified subsidiaries, including the Bank, since 2003. Thedifferent amounts between tax expense and deferred tax liabilities and assets based on consolidation and SPH with its qualifiedsubsidiaries are adjusted on SPH, related amounts are recognized as accounts receivable or accounts payable.
“Income Basic Tax Act” shall come into force on January 1, 2006. The amount of basic income of a profit-seeking enterprise
shall be the sum of the taxable income as calculated in accordance with the Income Tax Act and income exempted due tosuspension of income tax and other relevant laws, and then multiplied by the tax rate (10%) prescribed by the Executive Yuan.The affect of which higher between regular income tax and basic tax had been considered in current income tax.
Accounting for Leasing Business
For capital leases, the costs of equipment leased and the interests imputed thereon are accounted for as lease receivable. Theimputed interest is correspondingly treated as unearned interest income, and is periodically recognized as interest income when
earned using the interest rate method.
For operating leases, the contracted rentals are recognized as income when earned. Properties held for lease are stated at costless accumulated depreciation. Depreciation is calculated by the straight-line method on the basis of service lives estimated asfollows: buildings, 44 to 48 years; transportation equipment, 5 years, and others, 5 years.
When properties held for lease are sold at the end of leasing period, any resulting gain (loss) from the differences betweenproceeds and book value of properties held for lease is credited (charged) to current income.
Guarantee deposits received are the amounts retained under lease agreements. Interest expenses are computed during the leaseterms. At the end of the lese terms, guarantee deposits received will be returned to the debtors.
98
Financial Report
Account Receivable Factoring
Factoring receivables are account receivables purchased by the Bank and its subsidiaries. Service fees and interest income arerecognized during the factoring period.
Contingencies
A loss is recognized when it is probable that an asset has been impaired or a liability has been incurred and the amount of losscan be reasonably estimated. If the amount of the loss cannot be reasonably estimated or the loss is possible, the relatedinformation is disclosed in the financial statements.
Foreign-currency Translations
The translation of the foreign operation institute’s financial statement are as follows: The assets or liabilities accounts aretranslated at the spot rate on the balance sheet date; the stockholders’ equity accounts except the beginning balance of retainedearnings are translated at the historical rate. The beginning balance of the retained earnings is translated equally as the endingbalance of the aforementioned year. Dividends are translated at the spot rate on the declaration date; the revenue on expenseaccounts are translated at the weighted average rate.
Foreign currency transactions are recorded at the rate of exchange on the date of the transaction. At the balance sheet date,monetary assets and liabilities denominated in foreign currencies are translated into New Taiwan dollars equivalents using theclosing exchange rate. Exchange differences arising on the settlement of transactions at rates different from those at the date ofthe transaction, as well as unrealized foreign exchange differences on unsettled foreign currency monetary assets and liabilities,are recognized in the income statement.
Unrealized exchange differences on non-monetary financial assets (investments in equity instruments) are a component of the
change in their entire fair value. For a non-monetary financial asset classified as held for trading, unrealized exchangedifferences are recognized in the income statement. For non-monetary financial investments, which are classified asavailable-for-sale, unrealized exchange differences are recorded directly in equity until the asset is sold or becomes impaired.Except for the initial investment cost, gains or losses resulting from restatement at period-end of foreign-currency denominatedequity investments accounted for by the equity method are credited or charged to “cumulative translation adjustment” understockholders’ equity.
Hedge Accounting
Non-trading derivatives, which are used primarily as a risk management tool for hedging interest rate risk arising on on-balancesheet liabilities, are accounted for on the same basis as the underlying items being hedged.
In order to qualify as a hedge, a derivative must effectively reduce any risk inherent in the hedged item from potentialmovements in interest rates, exchange rates and market values. Changes in the fair value of the derivative must be highlycorrelated with changes in the fair value of the underlying hedged item over the life of the hedged contract. At the inception ofthe hedge, there must be formal designation and documentation of the hedging relationship, the Bank’s risk managementobjective and strategy for undertaking the hedge, the hedging instrument, the hedged items, overall risk management objectives
and strategies and how the entity will assess the hedging instrument’s effectiveness.
A fair value hedge that meets all the hedge accounting criteria is accounted for as follows:
a. The gain or loss from re-measuring the hedging instrument at fair value (for a derivative hedging instrument) or the foreigncurrency component of its carrying amount (for a non-derivative hedging instrument) is recognised immediately in profit orloss, and
b. The carrying amount of the hedged item is adjusted through profit or loss for the corresponding gain or loss attributable tothe hedged risk.
Reclassifications
Certain 2005 accounts have been reclassified to conform to the 2006 financial statements presentation.
3. ACCOUNTING CHANGES
Effective January 1, 2006, the Bank and its subsidiaries adopted the Statement of Financial Accounting Standard No. 34“Accounting for Financial Instruments”, No. 36 “Disclosure and Presentation of Financial Instruments” and other standardsamended for harmonizing with those two standards.
www.banksinopac.com
99
a. The amount of the cumulative effect resulting from the change to new accounting principles
The Bank and its subsidiaries properly reclassify the financial assets and financial liabilities when adopting aforementionednew accounting standards and related amendments to existing standards. The effects of the financial assets and liabilitiesat fair value through profit or loss and derivative of fair value hedge are included in cumulative effect of accountingchanges. The effects of the fair value change of available-for-sale financial assets are included in stockholders’ equityadjustments.
The cumulative effect of accounting changes are as follows:
Cumulative
Effect of
Accounting
Changes, After
Tax
Stockholders’
Equity
Adjustments,
After Tax
Financial assets at fair value through profit or loss $ 751,596 $ -
Available-for-sale financial assets - (348,270 )
Financial liabilities at fair value through profit or loss (452,301 ) -
$ 299,295 $ (348,270 )
b. Reclassification
Under an explanation issued by ARDF of R.O.C, when the Bank and its subsidiaries adopt Statement of FinancialAccounting Standard No. 34 effective on January 1, 2006, the Bank and subsidiaries need to reclassify the comparative
financial statements for the year ended 2005 instead of restating. The Bank and its subsidiaries shall state the differentvaluation method in the notes to the financial statements.
The different valuation methods of financial instruments the Bank and its subsidiaries apply are summarized as follows:
1) Securities purchased
Securities which are acquired principally for the purpose of sale in the near term are stated at the lower of cost or
market value. Market prices are determined as follows: (a) listed stocks - average daily closing prices for the lastmonth of the accounting period and; (b) GTSM stocks - average daily closing prices for the last month of theaccounting period, published by GTSM.
2) Long-term investments
Long-term equity investments are accounted for by the cost method if the Bank and subsidiaries do not havesignificant influence over the investees. For listed and GTSM stocks accounted for by the cost method, when theaggregate market value is lower than the total carrying amount, an allowance for decline in market value is provided
and the unrealized loss is charged against stockholders’ equity. If a decline in the value of an unlisted stockinvestment is considered as permanent loss, the decline is charged to current income.
3) Foreign exchange forward
Foreign-currency assets and liabilities arising from forward exchange contracts, which are mainly for accommodatingcustomers’ needs or managing the Bank and its subsidiaries’ currency positions, are recorded at the contractedforward rates. Gains or losses arising from the differences between the contracted forward rates and spot rates on
settlement are credited or charged to current income. For contracts outstanding on the balance sheet dates, the gainsor losses arising from the differences between the contracted forward rates and the forward rates available for theremaining maturities of the contracts are credited or charged to current income. Receivables arising from forwardexchange contracts are offset against related payables on the balance sheet dates.
4) Forward rate agreements
Forward rate agreements, which are mainly for accommodating customers’ needs or managing the Bank and its
subsidiaries’ interest rate positions, are recorded by memorandum entries at the contract dates. Gains or lossesarising from the differences between the contracted interest rates and actual interest rates upon settlement or on thebalance sheet dates are credited or charged to current income.
100
Financial Report
5) Cross-currency swaps
Cross-currency swaps, which are for the purposes of accommodating customers’ needs or managing the Bank and itssubsidiaries’ exposures, are marked to market on the balance sheet dates. The interest received or paid at eachsettlement date or balance sheet date is recognized as interest income or expense, which is credited or charged tocurrent income.
6) Asset swaps
Asset swaps involve exchanging the fixed interest of convertible bonds or fixed rate notes for floating interest. In
addition, asset swaps involve exchanging the fixed or floating interest of credit link notes for floating or fixed interest.These transactions are recorded by memorandum entries at the contract dates. Asset swaps are entered into forhedging purposes; they are used to hedge interest rate exposure in convertible bonds, fixed rate notes and credit linknotes denominated in foreign currency. Net interest on each settlement or balance sheet date is recorded as anadjustment to interest income or expense associated with the bonds or notes being hedged.
Certain 2005 accounts have been reclassified to conform 2006 financial statements presentation and new accountingstandards’ requirement:
December 31, 2005
Before
Reclassification
After
Reclassification
Balance sheets
Cash and cash equivalents $ - $ 657,000
Securities purchased 153,540,523 -
Accounts, interest and other receivables, net 206,746 -
Long-term equity investments - cost method, net 1,522,397 -
Other long-term investments 9,875,899 -
Other assets 7,602,879 -
Other liabilities - others 1,030,641 -
Financial assets at fair value through profit or loss - 38,389,668
Available-for-sale financial assets - 124,674,889
Held-to-maturity investments - 6,205,947
Unquoted equity instruments - 1,519,463
Non-active market debt instruments - 1,301,477
Financial liabilities at fair value through profit or loss - 1,030,641
$ 173,779,085 $ 173,779,085
For the Year Ended
December 31, 2005
Before
Reclassification
After
Reclassification
Income statement
Interest revenue $ 32,261,852 $ 33,975,222
Interest expense (949,600 ) -
Operating revenues - others 284,752 -
Income from securities, net 2,291,242 -
Loss from financial assets and liabilities at fair value throughprofit or loss - (530,527)
Realized gain from available-for-sale financial assets - 157,824
Realized gain from held-to-maturity investments - 1,469
Losses from unquoted equity investments - (14,516 )
Other non-interest income, net - 298,774
$ 33,888,246 $ 33,888,246
www.banksinopac.com
101
4. CASH AND CASH EQUIVALENTS
December 31
2006 2005
Due from other banks $ 11,092,743 $ 7,975,643
Notes and checks in clearing 8,331,708 7,384,032
Cash on hand 6,705,681 6,410,063
$ 26,130,132 $ 21,769,738
5. DUE FROM THE CENTRAL BANK AND OTHER BANKS
December 31
2006 2005
Call loans to banks $ 71,968,009 $ 70,455,446
Due from the Central Bank 27,205,900 29,965,203
Balance at US Federal Reserve Bank 19,465 268,122$ 99,193,374 $ 100,688,771
Due from the Central Bank consists mainly of New Taiwan Dollar (NTD) and foreign currency deposit reserves.
Under a directive issued by the Central Bank of the ROC, NTD-denominated deposit reserves are determined monthly atprescribed rates on average balances of customers’ NTD-denominated deposits. These reserves included $17,271,070 and
$16,602,037 as of December 31, 2006 and 2005, respectively, which are subject to withdrawal restrictions.
In addition, the foreign-currency deposit reserves are determined at prescribed rates on balances of additional foreign-currencydeposits. These reserve may be withdrawn momentarily and are noninterest earning. As of December 31, 2006 and 2005, thebalances of foreign-currency deposit reserves were $101,048 and $341,649, respectively.
6. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
December 31
2006 2005
Held for trading financial assets
Corporate bonds $ 12,064,295 $ 8,959,991
Bank debentures 3,297,290 2,839,943
Beneficiary certificates 2,529,430 5,049,216
Forward contracts 2,204,403 390,673
Listed stock 1,345,149 1,244,679
Premium paid on option contracts 1,226,804 1,052,941
Interest rate swap contracts 1,207,224 207,198
Assets based securities 733,974 472,241
Government bonds 717,106 355,889
Commercial papers 200,834 -
Currency swap 7,770 -
Negotiable certificates of deposit - 15,000,000
Structured instruments - 146,188
Others 46,016 20,60925,580,295 35,739,568
Financial assets designated at fair value through profit or loss
Corporate bonds 1,112,788 350,600
Credit linked notes 163,974 2,299,500
Listed stock 102,588 -
1,379,350 2,650,100
$ 26,959,645 $ 38,389,668
102
Financial Report
The Bank held 116,565,240 shares of SPH with carrying amounts of $1,490,918. Those shares of SPH held by the Bank didnot abide by the Financial Holding Company Act, which requires those shares to be (i) reissued to the employees of SPH or
SPH’s subsidiaries, (ii) used for equity conversion, or (iii) sold on a stock exchange or GTSM within three years as of May 8,2005. In the event that shares are not reissued or sold, such shares should be cancelled which causes the SPH’s capital stock todecrease, and the alteration registration should be completed. According to the explanations of ARDF of ROC, if the Bankdoes not receive any proceeds from SPH for those cancelled shares, the Bank needs to decrease its capital based on the capitaldecrease ratio while SPH follows the regulation to cancel and decrease its capital stock. The Bank got approval from theauthorities for the cancellation of capital stock, resulting in decreasing of capital stock of the Bank by $1,135,324. The date forcapital decreasing is on August 26, 2005.
In 2005, the Bank reclassified the listed and GTSM stocks accounted for by the cost method as securities purchased (reclassifiedas held for trading financial assets in 2006). The loss of $270,125 has been recognized when reclassified since the cost waslower than the market value. The market value has been recorded for the cost.
Held-for-trading financial assets as of December 31, 2006 and 2005 with a total face amount of $2,532,783 and $3,282,089 weresold under agreement to repurchase.
December 31
2006 2005
Held for trading financial liabilitiesBond options $ 1,192,778 $ -
Interest rate swap contracts 938,870 29,722
Forward contracts 847,623 -
Premiums received on option contracts 777,978 995,339
Cross-currency swap contracts 16,451 -
Structured instruments 1,842 3,500
Others 83,165 2,080
$ 3,858,707 $ 1,030,641
The Bank and its subsidiaries engage in derivative transactions mainly for accommodating customers’ needs and managing theirexposure positions. The Bank and its subsidiaries’ strategy is to hedge most of the market risk exposures using hedginginstruments with market value changes that have a highly negative correlation with the changes in the market of the exposuresbeing hedged.
The contract amounts (notional amounts) of outstanding derivative transactions for accommodating customers’ needs and
managing its exposure positions were as follows:
December 31
2006 2005
Interest rate swap contracts $ 238,753,090 $ 174,830,017
Currency swap contracts 283,793,496 215,176,011
Forward contractsBuy 65,394,539 60,811,690
Sell 66,728,520 51,676,754
OptionsLong position 83,883,944 57,689,571
Short position 70,745,616 60,671,218
Cross-currency swap contracts 21,699,230 24,128,935
Commodity linked interest rate swap contracts 101,700 115,632
Equity linked swap contracts 401,257 -
Assets swap contracts 2,797,862 3,606,536
Credit default swap contracts - buy 5,400,000 4,300,000
Credit default swap contracts - sell 1,588,940 359,059
FuturesBuy 23,851,308 367,462
Sell 19,557,600 1,169,066
The gains on held for trading financial assets and liabilities for the years ended December 31, 2006 were $1,270,028, and thelosses for the years ended December 31, 2005 were $530,527.
The gains on designated as financial investments at fair value through profit or loss for the year ended December 31, 2006 were$11,957.
www.banksinopac.com
103
7. ACCOUNTS, INTEREST AND OTHER RECEIVABLES, NET
December 31
2006 2005
Accounts receivable - factoring $ 23,859,149 $ 24,362,192
Lease receivable due in one year 5,404,581 5,099,257
Acceptances 4,854,114 3,581,451
Receivable from related parties 4,508,123 199,659
Interest receivable 3,975,244 3,088,892
Accounts and notes receivable 1,199,407 897,074
Credit card receivables - 6,980,290
Others 991,942 1,666,22644,792,560 45,875,041
Less - allowance for credit losses 709,094 974,822$ 44,083,466 $ 44,900,219
As of December 31, 2006, receivables from related parties included the $4,136,864 and $371,259, respectively representingreceivables of transfer of credit card business to SinoPac Card Corporation and the receivable from link-tax system. As of
December 31, 2005, receivables from related parties included $102,577 and $97,082 respectively representing dividendsreceivable and receivable from linked-tax system.
8. DISCOUNTS AND LOANS
December 31
2006 2005
Import and export negotiations $ 2,346,707 $ 2,812,130
Overdrafts 1,300,157 1,341,061
Accounts receivable - financing 4,728,128 3,223,939
Short-term loans 165,582,622 166,645,007
Medium-term loans 155,279,903 186,886,492
Long-term loans 298,404,539 283,832,786
Nonperforming loans transferred from loans 9,562,529 7,687,955637,204,585 652,429,370
Less - allowance for credit losses 6,170,588 4,381,965
- unearned loan fees 75,191 93,056$ 630,958,806 $ 647,954,349
Unearned loan fees are those pertaining to nonrefundable loan fees and certain direct costs associated with originating andacquiring loans. The fees collected are not recognized at the time of origination but are deferred and amortized using theeffective interest method over the life of the loan as an adjustment of the yield on the related loan.
As of December 31, 2006 and 2005, the balances of nonaccrual interest loans were $9,821,333 and $7,856,462, respectively.
The unrecognized interest revenues on nonaccrual interest loans amounted to $450,036 and $280,713 for the years endedDecember 31, 2006 and 2005, respectively.
For the years ended December 31, 2006 and 2005, the Bank and its subsidiaries had not written off credits for which legalproceedings had not been initiated.
The details of and changes in allowance for credit losses of loans, discounts and loans for the years ended December 31, 2006and 2005, respectively, were summarized below:
For the Year Ended December 31, 2006
Specific General
Reserve Reserve Total
Balance, January 1 $ 2,122,919 $ 2,259,046 $ 4,381,965
Provision 6,556,806 807,957 7,364,763
Write-off (5,766,591 ) - (5,766,591 )
Recovery of written-off credits 118,517 - 118,517
Reclassifications 968,612 (888,202 ) 80,410
Result from change of foreign exchange rate (1,083 ) (2,648 ) (3,731 )
Others - (4,745 ) (4,745 )
Balance, December 31 $ 3,999,180 $ 2,171,408 $ 6,170,588
104
Financial Report
For the Year Ended December 31, 2005
Specific General
Reserve Reserve Total
Balance, January 1 $ 1,108,557 $ 1,774,836 $ 2,883,393
Provision 3,738,489 384,205 4,122,694
Write-off (2,808,242 ) - (2,808,242 )
Recovery of written-off credits 236,829 - 236,829
Reclassifications (150,257 ) 145,954 (4,303 )
Result from change of foreign exchange rate 4,635 (45,949 ) (41,314 )
Others (7,092 ) - (7,092 )
Balance, December 31 $ 2,122,919 $ 2,259,046 $ 4,381,965
As of December 31, 2006 and 2005, allowances for credit losses and provisions for losses on guarantees of the Bank and itssubsidiaries were $7,026,195 and $5,509,931, respectively.
9. AVAILABLE-FOR-SALE FINANCIAL ASSETS
December 31
2006 2005
Negotiable certificate of deposit $ 154,933,803 $ 89,800,000
Government bonds 16,715,323 17,933,453
Corporate bonds 3,624,201 2,602,393
Bank debentures 2,826,077 -
Listed stocks 2,308,950 2,367,687
Subordinated beneficiary certificates of securitization 1,014,257 1,014,300
Commercial paper 119,691 6,931,670
Beneficiary certificate 32,504 55,464
Acceptance - 7,818
Treasury bills - 3,962,104
$ 181,574,806 $ 124,674,889
As of December 31, 2006, the Bank held 120,031 thousand shares of SPH, with carrying amount of $1,968,508 and marketvalue of $2,094,541, based on the closing prices as of December 31, 2006. The different amount of $126,033 was recorded asunrealized gain (loss) of financial instruments under stockholders’ equity.
As of December 31, 2005, the Bank held 120,031 thousand shares of SPH, with carrying amount of $2,292,706 and marketvalue of $1,968,508, based on the average daily closing prices for the last month of the year ended December 31, 2005. Theestimated decline of market value for all the stocks held was $324,198.
The available-for-sale financial assets amounting to $660,462 and $758,694 as of December 31, 2006 and 2005 had beenprovided to GTSM as bond payment settlement reserves for electronic bond trading system and to court for provisional seizure.
To comply with the Central Bank’s clearing system of RTGS, face amount of negotiable certificates of deposit aggregating
$15,050,000 and $20,560,200 had been provided as collaterals for the daytime overdraft as of December 31, 2006 and 2005,respectively, with pledged amounts that can be adjusted momentarily.
Government bonds and corporate bonds of the available-for-sale financial assets of FENB amounting to $5,917,065 and$2,838,097 as of December 31, 2006 and 2005 had been provided to America Union Bank and Union House Bank for loansguarantee.
The available-for-sale financial assets amounting $4,280,461 and $14,803,289 as of December 31, 2006 and 2005, respectively,
had been sold under agreements to repurchase.
www.banksinopac.com
105
10. SECURITIZATION
a. Characteristic, gain (loss) recognized and key economic assumptions used in measuring retained interests
In August 2004, the Bank sold part of its enterprise loans under securitization transactions. The Bank entrusted theseloans to Fuhwa Bank for issuing beneficiary certificates. The terms and key economic assumptions used in measuringretained interests were as follows:
Enterprise Loans
Terms under Securitization
Date of issuance August 3, 2004Carrying amount of enterprise loans $ 4,900,000Gain (loss) on securitization -
December 31, 2006
Senior Subordinated
First Second Third Fourth Fifth
Series of Certificates Tranche Tranche Tranche Tranche Tranche
Principal amount $ 1,188,100 $ 534,100 $ 441,000 $ 122,500 $ 1,014,300Annual interest Floating
interest rateplus 0.4%(Note)
Floatinginterest rateplus 0.6%(Note)
Floatinginterest rateplus 1.0%(Note)
Floatinginterest rateplus 1.2%(Note)
-
Key assumptions used inmeasuring retainedinterests
Maturity 3Expected credit losses
(annual rate)-
Discounted rate forresidual cash flows
1.748%
December 31, 2005
Senior Subordinated
First Second Third Fourth Fifth
Series of Certificates Tranche Tranche Tranche Tranche Tranche
Principal amount $ 1,188,100 $ 534,100 $ 441,000 $ 122,500 $ 1,014,300Annual interest Floating
interest rate
plus 0.4%(Note)
Floatinginterest rate
plus 0.6%(Note)
Floatinginterest rate
plus 1.0%(Note)
Floatinginterest rate
plus 1.2%(Note)
-
Key assumptions used inmeasuring retainedinterests
Maturity 3
Expected credit losses(annual rate)
-
Discounted rate forresidual cash flows
1.433%
Note: Floating rate is the average rate of the 90-day short-term bills in the secondary market of Telerate InformationInc., at 11:00 a.m. of Taipei time two working days prior to the first day of interest period of financial assets(shown on page 6165).
106
Financial Report
The investors of the subordinated certificates have a right over any remaining interest paid after fixed interest has been paidto the holders of the senior certificates in accordance with the principal amount. Any prepayment of principal shall be
paid to the tranche in the order mentioned above. When the debtors fail to pay on schedule, the investors and FuhwaBank have no recourse to the other assets of the Bank. The Bank has a right over the subordinated certificates. Thevalue of the subordinated certificates is subject to credit and interest rate risks on the transferred financial assets.
b. Sensitivity analysis
As of December 31, 2006 and 2005, key economic assumptions and the sensitivity of the current fair value of residual cashflows to immediate 10 percent and 20 percent adverse changes in these assumptions were as follows:
Enterprise Loans
December 31
2006 2005
Carrying amount of retained interest $ 1,014,257 $ 1,014,300Weighted-average life (in years) 3 3Discount rate of residual cash flows (annual rate) 1.748% 1.433%
Impact on fair value of 10% adverse change (125 ) (71)
Impact on fair value of 20% adverse change (560 ) ( 213 )
c. Due to the loans for securitized having no actual credit losses, the rate of expected static group loss equals to that ofexpected credit loss. The expected credit losses for the years ended December 31, 2006 are $43.
d. Cash flows
For the years ended December 31, 2005, the prepayments of principal before due date resulted in the cash inflow amountedto $1,600,000.
11. HELD-TO-MATURITY FINANCIAL ASSETS
December 31
2006 2005
Corporate bonds $ 2,929,795 $ 3,802,546Bank debentures 712,493 1,577,312Floating rate notes 488,940 492,750Government bonds 264,218 253,339Beneficiary certificates 214,500 80,000Negotiable certificate of deposits 162,980 -
$ 4,772,926 $ 6,205,947
To comply with Hong Kong branch’s clearing system of real-time gross settlement, government bonds included inheld-to-maturity financial assets had been provided as collaterals as of December 31, 2006 and 2005.
The held-to-maturity investments of FENB, the subsidiary of Bank SinoPac, amounting to $2,226,739 as of December 31, 2005had been provided to America Union Bank and Federal House Loan Bank for loans guarantee.
The held-to-maturity financial assets amounting $299,622 and $492,750 as of December 31, 2006 and 2005, had been soldunder agreement to repurchase.
12. EQUITY INVESTMENTS - EQUITY METHOD
December 31
2006 2005
Grand Cathay Securities Investment Trust Co. $ 184,217 $ 168,977
SinoPac Financial Consulting Co., Ltd. 2,311 2,255
$ 186,528 $ 171,232
www.banksinopac.com
107
As of December 31, 2006 and 2005, the equity investments under equity method and the related investment income amounting$14,984 and $27,883, respectively, which were based on the investees’ audited financial statements for the same period.
SinoPac Financial Consulting Co., Ltd., the subsidiary of the Bank, was not included in the consolidated entities since it isconsidered immaterial. Grand Cathay Securities Investment Trust Co., Ltd. was not included in the consolidated financialstatements since the Bank does not have significant influence over it.
13. OTHER FINANCIAL ASSETS
December 31
2006 2005
Unquoted equity instrumentsUnlisted equity investments $ 1,271,999 $ 1,519,463
Non-active market debt instrumentsFloating rate notes 1,173,151 544,817Corporate bonds 951,803 -Assets based securities 674,150 592,360
Bank debentures 651,920 164,300Other financial assets
Cash surrender-officer life insurance 1,074,034 1,036,736Hedged derivative financial instruments 411,174 -Short-term advancement 145,685 16,477Excess margin 127,936 50,082Nonperforming receivables transferred from other than loans, net 123,232 15,173Bills purchased 3,224 945
$ 6,608,308 $ 3,940,353
Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot bereliably measured are measured at cost.
Non-active market debt instrument as of December 31, 2005 with a total face amount of $38,789 were sold under agreement torepurchase.
Impairment loss of unquoted equity instruments recognized by the Bank amounted to $357,496 for the year endedDecember31,2005, which are summarized as follows:
Names of Investee Amount of Recognized Loss
Prudence Venture Investment Corp. $ 14,400Z-Com, Inc. 9,124Taiwan Leader Advanced Technology Co., Ltd. 5,788
Mondex Taiwan Corp. 34,000Chain Yarn Co., Ltd. 9,789Tekcon Electronics Corp. 19,824Telexpress Corp. 1,553Walton Advanced Engineering, Inc. 12,303Best 3C. Com 14,485e21 Corporation 6,438UOB 37,168
MDS Fund 88,076Enhance Biotech 14,509Dicon 25,348Virtual Silicon 9,864Tanox 8,299Altor 1,545Phytoceutica 8,300Bioagri 9,657
NavfII 131Source one 26,895
$ 357,496
108
Financial Report
14. PROPERTIES
December 31
2006 2005
Cost $ 14,855,352 $ 14,500,305Accumulated depreciation
Buildings 1,518,703 1,398,517Computer equipment 1,903,604 1,102,607Office and other equipment 1,793,753 2,222,880Transportation equipment 39,226 39,326
Improvements on leased assets 5,878 3,9045,261,164 4,767,234
Accumulated impairmentComputer equipment 9,888 -Office and other equipment 20,979 -
30,867 -Advances on acquisitions of equipment and construction in progress 69,549 91,684
$ 9,632,870 $ 9,824,755
Under government regulations, the Bank revalued its properties in the following years: Land in 1961, 1964, 1967 and 2001;and other properties in 1961.
The Bank transferred the land value increment tax reserve amounted to $423,254 to capital surplus - revaluation increment onland because of a tax law amendment, effective February 1, 2005.
The Bank merged with IBT on November 13, 2006. Under explanations (91) 128, 243 and 244 issued by ARDF of ROC, themerger should be treated as a reorganization because the Bank and IBT are both 100% owned subsidiaries of SPH. The Bankshould recognize all the assets and liabilities of IBT at book value (if the impairment occurs, the impairment loss should berecognized). Under the Financial Institutions Merger Act and explanation (94) 349 issued by the ARDF of ROC, the Bank didnot book the land value increment tax reserve amounted to $555,910 since the land was not revalued when both banks merged.
15. PROPERTIES HELD FOR LEASE
December 31
2006 2005
CostLand $ 1,404,420 $ 1,325,372Buildings 1,730,257 1,815,485Transportation equipment 1,139,889 942,177
Superficies 1,008,603 1,032,6185,283,169 5,115,652
Accumulated depreciationBuildings 216,299 155,144Transportation equipment 206,376 154,827
422,675 309,971Accumulated impairment
Transportation equipment 118,060 -
$ 4,742,434 $ 4,805,681
As of December 31, 2006 and 2005, properties held for lease amounted to $2,864,230 and $2,914,475, respectively, which werepledged to banks as collaterals for SinoPac Leasing’s credit line of borrowings and commercial papers issuance.
16. OTHER ASSETS
December 31
2006 2005
Guarantee deposits $ 1,002,898 $ 407,422Deferred tax assets 729,854 342,846Collateral assumed, net of accumulated impairment $35,339 and $35,256
as of December 31, 2006 and 2005, respectively 624,604 925,371Idle assets 621,023 679,888Intangible assets 610,609 630,605
www.banksinopac.com
109
December 31
2006 2005
Prepayment $ 389,692 $ 1,311,119Temporary payment 298,854 50,145Deferred pension cost 207,052 229,237Computer system software 167,894 243,071Others 755,156 603,922
$ 5,407,636 $ 5,423,626
As of December 31, 2006 and 2005, guarantee deposits amounted to $20,000 and $1,700, respectively, which were pledged tobank as collaterals for SinoPac Leasing’s credit line for borrowings and commercial papers issuance.
On August 15, 1997, Bank SinoPac acquired FENB through SinoPac Bancorp and the acquisition was accounted for using thepurchase method of accounting. The assets and liabilities of FENB were revalued to reflect the estimated fair market value asof the date of acquisition. The excess of purchase price over the fair market value of the net tangible assets acquired wasrecorded as intangible assets.
17. CALL LOANS AND DUE TO BANKS
December 31
2006 2005
Call loans $ 66,136,768 $ 59,513,809
Redeposits from the directorate general of postal remittance 10,701,007 14,706,199Due to banks 4,629,872 3,633,555Overdraft by banks 174,109 253,652Due to the Central Bank 53,583 44,772
$ 81,695,339 $ 78,151,987
18. SHORT-TERM BORROWINGS
As of December 31, 2006 and 2005, short-term borrowings had the last maturity dates in January 2007 to April 2007 andJanuary 2006 to June 2006 with interest rates of 1.83%-6.14% and 1.60%-5.43%, respectively.
19. COMMERCIAL PAPER PAYABLE
December 31
2006 2005
Commercial paper payable $ 390,000 $ 1,128,000Less - unamortized discount 605 3,471
$ 389,395 $ 1,124,529
Maturity date 96.01-96.03 95.01-95.03
Discount rate 1.918%-2.252% 1.65%-2.26%
20. ACCOUNTS, INTEREST AND OTHER PAYABLES
December 31
2006 2005
Notes and checks in clearing $ 9,161,374 $ 8,184,652Accounts payable - factoring 7,502,204 9,174,820Acceptance payable 4,854,114 3,601,312Interest payable 3,979,630 2,977,610
110
Financial Report
December 31
2006 2005
Accrued expense $ 1,771,172 $ 1,728,213Tax payable 1,030,310 767,675Accounts payable 260,681 821,637Temporary payments 159,877 223,388Others 753,870 332,293
$ 29,473,232 $ 27,811,600
21. DEPOSITS AND REMITTANCES
December 31
2006 2005
Checking $ 18,124,725 $ 20,245,084
Demand 113,252,324 117,846,661Savings - demand 169,050,010 162,949,635Time 258,221,406 225,079,818Negotiable certificates of deposit 36,966,600 48,237,100Savings - time 202,200,531 186,789,607Inward remittances 948,206 385,269Outward remittances 170,066 241,504
$ 798,933,868 $ 761,774,678
22. BANK DEBENTURES
December 31
The Bank 2006 2005 Maturity Date Terms
First dominant bankdebenture issued in 2001
$ - $ 5,000,000 2001.12.20-2006.12.20Principal is repayable on
maturity date.
Fixed interest rate of 3.08%.Interest is paid annually.
First subordinated bankdebenture issued in 2002
2,000,000 2,000,000 2002.12.23-2008.03.23Principal is repayable on
maturity date.
Floating interest rate except for thefirst two years fixed at 2.15%.Interest is paid semiannually.
First dominant bankdebenture issued in 2003
1,000,007 1,000,000 2003.02.14-2008.02.14Principal is repayable on
maturity date.
3.65% minus 6-month LIBOR.Interest is paid semiannually.
Second dominant bankdebenture issued in 2003
500,125 500,000 2003.03.19-2008.09.19Principal is repayable on
maturity date.
3.48% minus 6-month LIBOR.Interest is paid semiannually.
Third dominant bankdebenture issued in 2003
1,502,819 1,500,000 2003.05.09-2008.11.09Principal is repayable on
maturity date.
4.15% minus 6-month LIBORexcept for the first year fixed at2.50%. Interest is paidsemiannually.
Fourth dominant bank
debenture issued in 2003
414,539 400,000 2003.05.09-2008.11.09
Principal is repayable onmaturity date.
2% plus 180-day-NTD CP rate in
secondary market and minus6-month LIBOR. Interest is paidsemiannually.
First subordinated bankdebenture issued in 2003
2,500,000 2,500,000 2003.06.18-2008.12.18Principal is repayable on
maturity date.
180-day CP rate in secondary marketplus 0.3%. Interest is paidsemiannually.
Fifth dominant bankdebenture issued in 2003
998,197 1,000,000 2003.08.11-2010.08.11Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually
Sixth dominant bankdebenture issued in 2003
696,856 700,000 2003.08.20-2009.02.20Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually
www.banksinopac.com
111
December 31
The Bank 2006 2005 Maturity Date Terms
Seventh dominant bankdebenture issued in 2003
$ 797,582 $ 800,000 2003.09.16-2008.09.16Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually
Eighth dominant bankdebenture issued in 2003
498,217 500,000 2003.09.16-2008.09.16Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually
Ninth dominant bankdebenture issued in 2003
299,360 300,000 2003.09.22-2008.09.22Principal is repayable onmaturity date.
Coupon rate at 2.55% for the firstyear of the issuance and 5% minusindex rate for the years thereon.
Tenth dominant bankdebenture issued in 2003
998,998 1,000,000 2003.11.05-2008.11.05Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually.
Eleventh dominant bankdebenture issued in 2003
996,531 1,000,000 2003.11.14-2008.11.14Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Twelfth dominant bankdebenture issued in 2003
500,157 500,000 2003.11.21-2008.11.21Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually.
Thirteenth dominant bankdebenture issued in 2003
498,608 500,000 2003.11.28-2008.11.28Principal is repayable onmaturity date.
Floating rate except for the first yearfixed at 4%. Interest is paidsemiannually.
Fourteenth dominant bank
debenture issued in 2003
2,207,951 2,200,000 2003.12.02-2009.06.02
Principal is repayable onmaturity date.
Floating rate. Interest is paid
semiannually.
Second subordinated bankdebentures issued in 2003
3,600,000 3,600,000 2004.03.18-2009.09.18Principal is repayable onmaturity date.
Fixed interest rate of 2.3%, interestis paid semiannually.
First dominant bankdebentures issued in 2004
524,187 500,000 2004.04.26-2009.10.26Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually with simple interestbased on actual days.
Second dominant bankdebentures issued in 2004
300,151 300,000 2004.04.28-2009.10.28Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually.
Third dominant bankdebentures issued in 2004
500,597 500,000 2004.04.29-2009.04.29Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually with simple interestbased on actual days.
Fourth dominant bankdebentures issued in 2004
200,089 200,000 2004.05.14-2009.05.14Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually.
Fifth dominant bankdebentures issued in 2004
301,363 300,000 2004.05.17-2009.05.17Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually.
Sixth dominant bankdebentures issued in 2004
502,272 500,000 2004.05.17-2009.05.17Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually.
Seventh dominant bankdebentures issued in 2004
199,901 200,000 2004.05.21-2009.05.21Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Eighth dominant bankdebentures issued in 2004
515,814 500,000 2004.05.21-2011.05.21Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually with simple interestbased on actual days.
Ninth dominant bankdebentures issued in 2004
301,332 300,000 2004.06.03-2009.06.03Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually.
Tenth dominant bank
debentures issued in 2004
507,987 500,000 2004.06.07-2009.06.07
Principal is repayable onmaturity date.
Floating rate. Interest is paid
semiannually with simple interestbased on actual days.
112
Financial Report
December 31
The Bank 2006 2005 Maturity Date Terms
Eleventh dominant bankdebentures issued in 2004
$ 202,344 $ 200,000 2004.06.15-2009.06.15Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually with simple interestbased on actual days.
Twelfth dominant bankdebentures issued in 2004
514,608 500,000 2004.06.15-2010.06.15Principal is repayable onmaturity date.
Floating rate. Interest is paidsemiannually with simple interestbased on actual days.
Thirteenth dominant bankdebentures issued in 2004
303,676 300,000 2004.06.30-2009.06.30Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Fourteenth dominant bankdebentures issued in 2004
514,522 500,000 2004.07.09-2010.07.09Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Fifteenth dominant bankdebentures issued in 2004
527,443 500,000 2004.07.13-2011.07.13Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
First subordinated bankdebentures issued in 2004
1,546,788 1,500,000 2004.09.14-2010.06.14Principal is repayable on
maturity date.
Floating rate. Interest is paidsemiannually.
Second subordinated bankdebentures issued in 2004
500,000 500,000 2004.09.14-2010.06.14Principal is repayable on
maturity date.
Index rate plus 0.50%. Interest isreset semiannually since theissuance date. Interest is paidsemiannually.
First subordinateddebentures issued in2005
3,000,000 3,000,000 2005.12.13-2011.06.13Principal is repayable on
maturity date.
Index rate plus 0.35%. Interest isreset semiannually since theissuance date. Interest is paidsemiannually.
FENBFENB subordinated
debentures issued325,960 328,500 2003.06.26-2013.06.26
Principal is repayable onmaturity date.
Floating rate. Interest is paidquarterly.
FENB subordinateddebentures issued
162,980 164,250 2003.09.17-2013.09.17Principal is repayable on
maturity date.
Floating rate. Interest is paidquarterly.
$ 31,461,961 $ 36,292,750
23. BONDS PAYABLE
The Bank (formerly IBT) issued US$180,000 thousand in zero coupon Euro convertible bonds with par of US$1,000 on
December 22, 2004. The terms of the bonds are as follows:
a. Redemption method
The Bank will redeem the bonds on the maturity date at a price equal to 99.95% of the outstanding principal amount unlessthe bonds have been previously redeemed, repurchased and canceled, or converted.
1) Redemption at the Bank’s option
a) At any time on or after December 22, 2006 and before December 22, 2009, the Bank may redeem all the bonds atone time or make piecemeal redemptions at 100% of the principal if the average closing price of the shares,translated into U.S. dollars at the prevailing rate on the issue date, for at least 20 consecutive trading daysimmediately preceding the date of such notice of redemption, is at least 130% of the conversion price then ineffect, translated into U.S. dollars at the fixed exchange rate.
b) The Bank may redeem all the bonds at one time, but not piecemeal, at 100% of the principal at any time if at least90% of the principal of the bonds has already been redeemed, repurchased and canceled, or converted.
c) The Bank may redeem all the bonds at one time, but not piecemeal, at 100% of the principal at any time if anychanges in ROC taxation would require the Bank to gross up the payment of interest or premium.
www.banksinopac.com
113
2) Redemption at the holders’ option
a) Each bondholder has the right to require the Bank to redeem all or part of the bonds only on December 22, 2006at 99.98% of the principal unless the bonds had been previously redeemed, repurchased and canceled, orconverted.
b) Each holder has the right to require the Bank to buy all of the holder’s bonds at 100% of the principal amount ifthe shares cease to be listed or admitted for trading on the TSE for at least five consecutive trading days.
c) Each holder has the right to require the Bank to buy all or a portion of the holder’s bonds at 100% of the principalamount if there is change of control over the Bank.
d) On December 26, 2005, the Bank became a wholly owned subsidiary of the Company. This developmentconstitutes a change of control, on which the bond indenture has certain provisions. Thus, under the indenture,each holder has the right to require the Bank to repurchase all or a portion of his/her bond holdings. In addition,the Bank set February 22, 2006 as the change of control date and the change of put price at 100% of the unpaidprincipal of the bonds.
b. Maturity date
The maturity period is five years after bond issuance. Since the bonds were issued on December 22, 2004, the maturitydate is on December 22, 2009.
c. Pledged: Negative.
d. Conversion period
The bondholders can convert the bonds to IBT’s stock between January 21, 2005 and December 12, 2009. They, however,will not be able to effect conversions during the closed period. A closed period is (i) 60 days before any generalstockholders’ meetings; (ii) 30 days before any special stockholders’ meetings; (iii) 5 days before the declaration ofdividends or other benefits; (iv) the period from the date following the third trading day before the date of IBT’snotification to the Taiwan Stock Exchange of the record date for the determination of stockholders entitled to the receipt ofdividends, subscription for new shares due to capital increase, or appropriation of other benefits and bonuses; and (v) suchother periods during which IBT should suspend the trading of its stocks, as required by ROC laws and regulations.
e. Conversion price
1) The conversion price on issuance is NT$26.26 per share. The conversion price in U.S. dollars is based on theexchange rate of US$1=NT$32.49. The conversion price is subject to adjustment based on certain terms of therelated indenture. (Effective July 8, 2005, the conversion price for distributing cash dividends was adjusted fromNT$26.26 to NT$25.22.)
2) If the average closing price of the shares for any 30 consecutive trading days immediately before December 22, 2005,December 22, 2006, December 24, 2007 and December 22, 2008 (the ‘‘special reset dates’’), converted into U.S.
dollars at the prevailing rate on the special reset dates, is less than the conversion price then in effect converted intoU.S. dollars at the fixed exchange rate, the conversion price may be decreased up to 80% of original conversion price.Effective December 22, 2005, the conversion price was reset from NT$25.22 to NT$22.99. Effective June 30, 2006,the conversion price was reset from NT$22.99 to NT$22.25. Effective November 13, 2006, the conversion price wasreset NT$18.94. When converting to SPH’s shares, the conversion price was $16.31 which was reset at a share swapratio 1:1.3646.
f. Settlement option
Instead of delivering to the holders some or all of the shares required for the valid exercise of a conversion right, the Bankmay elect to make a cash payment for all or any portion of a holder’s bonds deposited for conversion.
g. Supplemental agreements
On December 26, 2005, the Bank became a wholly owned subsidiary of the Company and the Bank’s common shares wereceased to be traded on the TSE. In the interest of the bondholders, the Bank granted to the bondholders outside the United
States the additional rights, after converting the bonds into common shares of the Bank, and further exchanging the Bank’scommon shares for the Company’s shares at a certain ratio. If the bondholders do not choose to convert into theCompany’s common shares, their bonds still can be converted into the Bank’s common shares.
114
Financial Report
The Bank purchased bonds both with par value of US$2,000 thousand from the secondary market. As of December 31,2006 and 2005, bonds with par value of US$176,000 thousand and US$178,000 thousand, respectively, were still
outstanding.
24. LONG-TERM BORROWINGS
As of December 31, 2006 and 2005, long-term borrowings had the last maturity date in May 2010 with interest rate of1.89%-6.40% and 1.82%-5.42%, respectively.
25. OTHER LIABILITIES
December 31
2006 2005
Guarantee deposit received $ 2,326,875 $ 2,178,268Accrued pension liabilities 754,919 579,176
Reserve of land value increment tax 458,362 623,423Deferred tax liabilities 378,981 593,768Others 705,835 1,376,847
$ 4,624,972 $ 5,351,482
26. STOCKHOLDERS’ EQUITY
a. Capital stock
The capitalization of retained earnings in 2004 had been approved by the authority, and the authorized and issued capitalincreased from $19,443,976 to $20,863,392 on July 6, 2005. Pursuant to the Financial Holding Company Act, the116,565,240 shares of SPH, which were held by the Bank for three years as of May 8, 2005, has been cancelled andsubsequently decreased the SPH’s capital stock. In addition, the alteration registration has been completed. Because theBank did not receive the proceeds from SPH for those cancelled shares, it had to decrease its capital according to the
capital decrease ratio. The capital stock decreased by $1,135,324 (please see Note 6), and the capital stock after capitaldecrease amounted to $19,728,068. Furthermore, the Bank increased its authorized capital to $80,000,000 toaccommodate the need of mergering with IBT and issued 2,612,390,428 shares for the merger with IBT on November 13,2006. The capital stock after merger amounted to $45,851,972.
b. Capital surplus
Under related regulations, capital surplus may only be used to offset a deficit. However, capital surplus arising fromissuance of shares in excess of par value (including issuance in excess of common stock par value, issuance of shares for
combinations and treasury stock transactions) and donations may be transferred to common stock on the basis of thepercentage of shares held by the stockholders. Any capital surplus transferred to common stock should be within a certainpercentage prescribed by law.
c. Retained earnings and dividend policy
The Bank’s Articles of Incorporation provide that the Bank may declare dividends or make other distributions fromearnings after it has:
1) Deducted any deficit of prior years;
2) Paid all outstanding taxes;
3) Set aside 30% of remaining earnings as legal reserve;
4) Set aside any special reserve or retained earnings allocated at its option;
5) Allocated stockholders’ dividends;
6) Allocated at least 1% of the remaining earnings which allocated stockholders’ dividends as employee bonus.
www.banksinopac.com
115
To comply with the Bank’s globalization strategy, strengthen its market position, integrate its diversified businessoperation and be a major local bank, the Bank has adopted the “Balanced Dividend Policy”. Under this policy, dividends
available for distribution are determined by referring to its capital adequacy ratio (CAR). Cash dividends may be declaredif the Bank’s CAR is above 10% and stock dividends may be declared if the CAR is equal to or less than 10%. However,the Bank may make a discretionary cash distribution even if the CAR is below 10%, if approved at the stockholders’meeting, for the purpose of maintaining the cash dividends at a certain level in any given year.
Cash dividends and cash bonus are paid when approved by the stockholders, while the distribution of stock dividendsrequires the additional approval of the authorities.
Under the Company Law, the appropriation for legal reserve is made until the reserve equals the aggregate par value of theoutstanding capital stock of the Bank. This reserve is only used to offset a deficit. When its balance reaches 50% ofaggregate par value of the outstanding capital stock of the Bank, and the Bank have no earnings, the legal reserve over 50%can be distributed as stock dividend or bonus, or, the Bank have no deficit, the Bank can retain the legal reserve up to 15%of the outstanding capital and transferred the remaining legal reserve to common stock. In addition, the Banking Lawprovides that, before the balance of the reserve reaches the aggregate par value of the outstanding capital stock, annual cashdividends, remuneration to directors and supervisors and bonus to employees should not exceed 15% of aggregate parvalue of the outstanding capital stock of the Bank.
Under the Financial Holding Company Act, the board of directors is empowered to execute the authority in stockholders’meeting, which is under no jurisdiction in the related regulations in the Company Law.
On June 2, 2006, and April 28, 2005, the board of directors which execute rights and functions of stockholders’ meetingresolved the appropriation of 2005 and 2004 earnings, respectively, as follows:
Dividends Per Share
Earnings Appropriation (New Taiwan Dollars)
2005 2004 2005 2004
Legal reserve $ 497,192 $ 1,285,444Remuneration to directors and supervisors 32,000 26,847Bonus to employees - cash 11,601 28,946Cash dividends 1,116,514 1,419,416 $0.57 $0.73
Stock dividends - 1,419,416 0.73
$ 1,657,307 $ 4,180,069
On March 21, 2006, and June 10, 2005, IBT’s stockholders’ meeting resolved the appropriation of 2005 and 2004 earnings,respectively, as follows:
Dividends Per Share
Earnings Appropriation (New Taiwan Dollars)
2005 2004 2005 2004
Legal reserve $ 735,310 $ 983,825Special reserve - 93,966Remuneration to directors and supervisors 62,531 55,583Cash dividends 1,623,017 2,000,980 $0.73 $0.90Bonus to employees - cash 187,592 166,748
$ 2,608,450 $ 3,301,102
Under the Financial Holding Company Act, the board of directors is empowered to execute the authority in stockholders’meeting. IBT under no jurisdiction in the related regulations in the Company Law effective on December 26, 2005.
The appropriation of 2006 earnings has not yet been resolved by the board of directors as of February 8, 2007, the date ofauditors’ report. The related information regarding the proposed and resolved earnings appropriation can be found at the
SEC Market Observation Post System (M.O.P.S.) website.
In addition, had the aforementioned remuneration to directors and supervisors and bonus to employees (included in theappropriation of 2005 and 2004 earnings) been recognized as expenses, the basic EPS (after tax) for 2005 would have been
116
Financial Report
decreased from NT$0.98 to NT$0.97 per share, and the basic EPS (after tax) for 2004 would have been decreased fromNT$2.05 to NT$2.03 per share.
27. COMMISSIONS AND FEE REVENUES, NET
For the Years Ended
December 31
2006 2005
Commissions and fees revenues
Mutual funds $ 1,503,146 $ 1,182,450Loan 550,468 1,299,496Import and export 449,861 462,585Factoring and financing 278,145 342,858Custody 272,212 290,853Credit card 140,534 579,809Guarantee and acceptance 90,895 102,803Automatic equipment service fees 76,370 86,137
Financial transaction 2,711 4,765Others 376,366 425,235
3,740,708 4,776,991Commissions and fees expenses
Mutual funds 129,489 74,703Automatic equipment service fees 82,135 77,032Import and export 2,592 2,288Loan 64,334 66,777
Factoring and financing 263 3,114Custody 15,229 5,478Financial transaction 49,349 56,093Credit card 15,807 69,344Others 93,839 121,203
453,037 476,032
$ 3,287,671 $ 4,300,959
28. PERSONNEL EXPENSE, DEPRECIATION AND AMORTIZATION
For the Years Ended
December 31
2006 2005
Personnel expensesSalaries and wages $ 6,009,264 $ 5,923,987
Pension 629,097 353,944Labor insurance and national health insurance 332,358 318,879Others 373,628 232,420
7,344,347 6,829,230Depreciation 917,232 873,279Amortization 135,022 227,220
$ 8,396,601 $ 7,929,729
29. PENSION
The Labor Pension Act took effect on July 1, 2005, and the Bank’s employees, who were on service before July 1, 2005, couldchoose the pension mechanism either under the Labor Standard Law or under this Act. For those employees who choose thepension mechanism regulated by the Labor Standard law, their seniority prior to the enforcement of Labor Pension Act shall bemaintained. The newly hired employees, who were hired after July 1, 2005, could only be regulated by the Labor Pension Act.
Since July 1, 2005, for those employees who still choose to be subjected to the Labor Standard Law, the Bank makes monthlycontributions, equal to 4% of employee salaries, to the severance payment fund. If the employees quit willingly, they still canreceive the severance payment based on the severance payment criteria. On November 13, 2006, for those employees who
www.banksinopac.com
117
joined the Bank owning to the merger and still choose to be subjected to the Labor Standard Law, the Bank made monthlycontributions, equal to 4% of employee salaries, to the severance payment fund excluding those who are eligible for promoted
or enforced retirement project. If the employees quit willingly, they still can receive the severance payment based on theseverance payment criteria.
For the Bank’s employees choose the pension mechanism regulated by the Labor Standard Law, the retirement payments shallbe paid to employees on the basis of the following standard: (i) a lump sum payment of retirement payments equal to two baseunits shall be paid for each year of service (ii) provided that each year of service exceeding fifteen years shall be entitled to onlyone base unit of wage (iii) and that the maximum payment shall be forty-five base units. Any fraction of a year which is equalto or more than six months shall be counted as one year of service, and any fraction of a year which is less than six months shall
be counted as half a year of service.
For those employees who choose to be subjected to the Labor Pension Act, the Bank ceases to contribute into severancepayment fund. The cumulated contributions generated before applying Labor Pension Act is summed up in the balance at thatmonth and retained in the severance payment fund. The employees will receive severance payments according to severancepayment criteria when they quit willingly.
The Bank and SinoPac Leasing apply defined contribution plan regulated by Labor Pension Act after July 1, 2005. Under this
Act, the Bank contributed 6% of the employee salaries to the Labor Insurance Administration (according to this Act, thecontribution rate by the employer to the Labor Pension Fund per month shall not be less than 6% of the employee’s monthlywages).
Since July 1, 2005, for those employees who still choose to be subjected to the Labor Standard Law, SinoPac Leasing makesmonthly contributions, equal to 7% of employee salaries, to the severance payment fund.
For the years ended December 31, 2006 and 2005, the pension expense amounted to $122,136 and $57,371, which was
contributed to personal pension accounts.
The related information about defined benefit plan for the Bank and SinoPac Leasing were summarized below:
a. The changes in the pension fund were summarized below:
For the Years Ended
December 31
2006 2005
Balance, January 1 $ 870,020 $ 2,170,133Contributions 753,416 317,279Benefits paid (46,895 ) (661,643 )Interest income 21,761 51,174
Balance, December 31 $ 1,598,302 $ 1,876,943
b. Net pension costs for the years ended December 31, 2006 and 2005 were summarized below:
For the Years Ended
December 31
2006 2005
Service cost $ 74,122 $ 169,503Interest cost 43,591 104,304
Expected return on plan assets (24,031 ) (62,884 )Net amortization and deferral 15,218 64,940
Net pension cost $ 108,900 $ 275,863
The pension expense amounted to $153,576 was recognized based on accrual report by IBT for the period ended November13, 2006 and by Bank SinoPac for the year ended December 31, 2006. The pension expense included the expense of$225,545 for the promoted retirement project and $3,725 for others.
c. The reconciliations of the funded status of the plan and accrued pension cost as of December 31, 2006 and 2005 were asfollows:
118
Financial Report
December 31
2006 2005
Benefit obligationVested benefit obligation $ 718,052 $ 753,284Nonvested benefit obligation 1,602,272 1,440,428
Accumulated benefit obligation 2,320,324 2,193,712Additional benefit based on future salaries 926,337 1,053,142Projected benefit obligation 3,246,661 3,246,854
Fair value of plan assets (1,598,302 ) (1,878,350 )Funded status 1,648,359 1,368,504Unrecognized net transition obligation (13,699 ) (18,288 )Unamortized prior service cost (187,143 ) (229,665 )Unamortized pension loss (1,079,976 ) (995,502 )Additional accrued pension liabilities 363,005 450,506Accrued pension cost $ 730,546 $ 575,555
Deferred pension cost $ 207,052 $ 229,237
Net loss not recognized as pension cost $ 155,953 $ 221,269
d. Vested benefit $ 1,070,916 $ 1,018,626
e. Actuarial assumptions1) Discount rate used in determining present values 3.5% 3.5%
2) Expected rate of return on plan assets 2.5% 2.5%3) Future salary increase rate 2.5-3.0% 2.5-3.5%
FENB has a pension plan for regular employees who have been employed for at least one year. According to this plan,employees may contribute up to 15% of their annual salary with FENB matching up to 3% of the employee’s contribution.
30. INCOME TAX
Under a directive issued by the MOF, a financial holding company and its domestic subsidiaries which over 90% of sharesissued was held by the financial holding company for 12 months within the same tax year, may choose to adopt the linked taxsystem for income tax filings. SPH adopted the linked-tax system for income tax filings with its qualified subsidiaries since2003.
The accounting treatment applied by the Group to the income tax is to adjust in SPH’s book the difference between thecombined current/deferred taxes and the total of each Group member’s current/deferred. Related payables and receivableswere recorded in each of the Group members’ books.
a. The components of income tax were as follows:
For the Years Ended
December 31
2006 2005
Current income tax payable $ (36,633 ) $ 1,321,828
Separate taxes on short-term bills interest revenue 510,183 338,990Change in deferred income taxes (152,427 ) (217,816 )Foreign income taxes over limitation 210,657 5,294Prior year’s adjustment (88,571 ) (49,788 )Loss deduction minus tax - exempt dividends 6,161 -
$ 449,370 $ 1,398,508
Income tax was based on taxable income from all sources. Foreign income taxes paid can be used as credits against thedomestic income tax obligations to the extent of domestic income tax applicable to the foreign-source income.
www.banksinopac.com
119
b. Reconciliation of tax on pretax income at statutory rate and current income tax payable:
For the Years Ended
December 31
2006 2005
Tax on pretax income at 25% statutory rate $ 1,017,448 $ 1,397,952Add (deduct) tax effects of:
Tax-exempt income (144,783 ) 12,369Permanent difference (862,272 ) (376,710 )
Temporary difference (39,737 ) 292,231Investment tax credit (4,334 ) (4,525 )Deductible loss (2,955 ) (2,036 )Others - 2,547
Current income tax payable (deductible loss carryforward) $ (36,633 ) $ 1,321,828
c. Deferred income tax assets (liabilities) consisted of the tax effects of the following:
December 31
2006 2005
The Bank
Investment income under the equity method $ (864,720 ) $ (659,900 )Deferred pension cost 330,555 236,347Unrealized exchange and revaluation on financial instrument loss 26,567 82,038
Deductible loss 709,463 -Effects on the adoption of the linked tax system (114,787 ) -Others (28,598 ) (46,555 )
Deferred tax assets (liabilities) $ 58,480 $ (388,070 )
Deferred tax assets (included in other assets) $ 3,408 $ 3,993
SinoPac Bancorp and its subsidiary
Goodwill amortization $ (38,988 ) $ (46,276 )Deferred loan fees (161,653 ) (173,779 )Provision for credit losses 256,394 202,820Other 175,504 105,894
Deferred income tax assets, net $ 231,257 $ 88,659
SinoPac Leasing and it subsidiaries
Investment loss (income) under the equity method $ 73,937 $ 81,029Allowance for bad debts beyond limits 21,024 14,914Depreciation expenses of properties and properties held for lease (37,309 ) (35,594 )Other 76 -
Deferred income tax assets, net $ 57,728 $ 60,349
d. The estimated receivables and payables from adopting the linked-tax system of income tax filing was as follows:
December 31
2006 2005
Receivable from related party $ 371,259 $ 97,082Payable to related party $ - $ 22,284
120
Financial Report
e. The related information under the Integrated Income Tax System was as follows:
December 31
2006 2005
Balances of ICA
Bank SinoPac $ 1,499,474 $ 139,615SinoPac Leasing 18,383 60SinoPac Life Insurance Agent 64,859 55,425SinoPac Property Insurance Agent 417 1,030
The balances of imputed tax credit account of IBT was $79,602 as of December 31, 2005.
The projected creditable tax ratio for earnings in 2006 is 17.76% based on the estimated balances of Imputation Credit onthe dividend distribution date. The actual imputed tax ratio for earnings in 2005 was 16.35%. The actual imputed taxratio for earnings of IBT in 2005 was 27.15%.
The tax credits allocable to shareholders are based on the balance of Imputation Credit Account on the dividend
distribution date. Thus, the 2006 projected imputed tax ratio may vary from the actual ratio.
SinoPac Leasing have no distributable earning in 2005, thus, the ICA balance of SinoPac Leasing will be accumulated tothe earnings - appropriated year for the creditable tax ratio for earnings.
The projected creditable tax ratio for earnings of SinoPac Life Insurance Agent in 2006 and 2005 were both 33.33%.
The projected creditable tax ratio for earnings of SinoPac Property Insurance Agent in 2006 and 2005 were both 33.33%.
f. The unappropriated earnings generated before January 1, 1998 as of December 31, 2006 and 2005 were $8,758 and$60,938, respectively. The unappropriated earnings are recorded as capital surplus owing to merger of IBT.
g. For Bank SinoPac, income tax returns through 2002, except those for 1996, had been examined by the tax authorities. Onthe income tax returns for the aforementioned years, the tax authorities denied the creditability of 10% withholding tax oninterest income on bonds pertaining to the period when those bonds were held by other investors. Bank SinoPac appealedthe decision of the tax authorities. Nevertheless, on the basis of conservative principles, Bank SinoPac recognized
$111,209 as part of income tax expenses to reflect accrued liabilities and any assets written off in relation to the foregoingwithholding taxes.
h. For the income tax returns for 1995 to 2001, the tax authorities denied the creditability of 10% withholding tax on interestincome on bonds amounting to $173,382 in 2001, which pertained to the period those bonds were held by other investors.IBT accrued this liability and appealed the decision of the tax authorities. In 2003, IBT reached an agreement with theTaipei National Tax Administration (TNTA) on the above appealing cases, in which TNTA would refund 65% of thewithholding tax denied on the interest income on bonds to IBT. The income tax return for 2003 and 2002 had beenexamined by the tax authorities according to the aforementioned refund percentage. Consequently, IBT accrued 35% of
the withholding tax denied on the interest income on bonds as income tax expenses for 2004 to 2006, which were notrefunded by tax authorities.
Under the integrated income tax system, which took effect on January 1, 1998, the stockholders are allowed a tax credit fortheir proportionate share of the income tax paid by the Bank on earnings generated since 1998. An imputation creditaccount (ICA) is maintained by the Bank for such income tax and the tax credit allocated to each stockholder. Themaximum credit available for allocation to each stockholder cannot exceed the balance shown in the ICA on the date ofdividend distribution.
www.banksinopac.com
121
31. EARNINGS PER SHARE
The numerators and denominators used in computing earnings per shares (EPS) were summarized as follows:
Denominator EPS (NT$)
Numerator (Amounts) (Shares in After
Pretax After Tax Thousands) Pretax Tax
For the year ended December 31, 2006
Basic EPS
Income before cumulative effectof accounting changes $ 2,661,290 $ 2,211,920 4,585,197 $ 0.58 $ 0.48
Cumulative effect of accountingchange 282,626 299,295 4,585,197 0.06 0.07
Net income attributable to parentcompany 2,943,916 2,511,215 4,585,197 $ 0.64 $ 0.55
Influence on diluted common sharesBond payable 22,387 16,790 297,669
Diluted EPS $ 2,966,303 $ 2,528,005 4,882,866 $ 0.61 $ 0.52
For the year ended December 31, 2005
Basic EPSNet income attributable to parent
company $ 5,966,707 $ 4,568,199 4,659,226 $ 1.28 $ 0.98
Influence on diluted common sharesBond payable 24,640 18,480 266,442
Diluted EPS $ 5,991,347 $ 4,586,679 4,925,668 $ 1.22 $ 0.93
32. RELATED-PARTY TRANSACTIONS
In addition to the disclosure in other footnotes, relationship with the Bank and its subsidiaries and significant transactionsbetween the Bank and its subsidiaries and related parties were summarized as follows:
a. Related parties
Name Relationship with the Bank
SinoPac Financial Holdings Company Limited (SPH) Parent companySinoPac Securities Corporation (SinoPac Securities) Subsidiary of SPH
SinoPac Marketing Consulting Co., Ltd. (SinoPacMarketing Consulting)
Subsidiary of SPH
SinoPac Call Center Co., Ltd. (SinoPac Call Center) Subsidiary of SPHSinoPac Venture Capital Co., Ltd. (SinoPac Venture
Capital)Subsidiary of SPH
SinoPac Asset Management International (SinoPacAsset Management)
Subsidiary of SPH
SinoPac Card Services Co., Ltd. (SinoPac Card
Services, formerly known as AnShin CardServices Company, Ltd.)
Subsidiary of SPH
SinoPac Investment Trust Corp. Subsidiary of SPH. All its managed funds have beentransferred to Grand Cathay Securities Investment TrustCorporation. Now it is under the liquidation process.
Fortune Investment Co., Ltd. (Fortune Investment) AffiliateRuentex Development Co., Ltd. (Ruentex
Development)Affiliate
SinoPac Futures Corporation (SinoPac Futures) Subsidiary of SinoPac SecuritiesSinoPac Managed Futures Co., Ltd. (SinoPac
Managed Futures)Affiliate of SinoPac Securities
122
Financial Report
Name Relationship with the Bank
SinoPac Columbus Fund Managed by Grand Cathay Securities Investment Trust Co.,Ltd.
SinoPac New Century Fund Managed by Grand Cathay Securities Investment Trust Co.,Ltd.
SinoPac Global Fixed Income Portfolio Fund Managed by Grand Cathay Securities Investment Trust Co.,Ltd.
Wal Tech International Corporation (Wal TechInternational)
Affiliate
SinoPac Securities (Cayman) Holding Subsidiary of SinoPac SecuritiesRung-Tzung Investment Corp. AffiliateTaiGen Biotechnology Company Ltd. AffiliateBoardTek Electronics Corp. AffiliateOther The Bank’s directors, supervisors, managers and their
relatives, department chiefs, the investees accounted forby the equity method and their subsidiaries, and theinvestees of SPH’s other subsidiaries, etc.
Other Related parties under the control of the Bank but withouttransactions, please refer to Table 5
b. Significant transactions between the Bank and its subsidiaries and related parties
1) Loans
Ending % of Interest % of
Balance Total Interest Rate Revenue Total
For the year ended
December 31, 2006
SinoPac Securities $ 640,000 0.10 1.75 $ 919 -
BoardTek Electronics Corp. 359,000 0.06 2.94 1,759 -
Rung-Tzung Investment Corp. 246,671 0.04 3.45-3.51 684 -
Others 507,677 0.08 1.75-8.3 3,734 0.01
For the year ended
December 31, 2005
SinoPac Securities 500,000 0.08 1.53 459 -
BoardTek Electronics Corp. 344,000 0.05 2.4-2.77 8,744 0.03
Rung-Tzung Investment Corp. 246,671 0.04 3.12-3.2 7,164 0.02
Others 1,577,084 0.25 1.58-7.4 35,043 0.10
2) Deposits
Ending % of Interest % of
Balance Total Interest Rate Expense Total
For the year endedDecember 31, 2006
SPH $ 422,450 0.05 0-5.37 $ 76,139 0.32
SinoPac Securities 1,636,689 0.20 0-2.9 22,525 0.10
SinoPac Securities (Asia) Ltd. 1,005,482 0.13 0-5.15 42,266 0.18
TaiGen Biotechnology Company
Ltd.
401,825 0.05 0.1-2.35 547 -
SinoPac Venture Capital 378,697 0.05 0.1-2.35 5,525 0.02
Others 2,783,381 0.35 0-13 39,105 0.16
For the year endedDecember 31, 2005
SPH 3,075,033 0.40 0-4.501 30,374 0.18
SinoPac Securities 1,244,444 0.16 0-1.89 21,071 0.12
www.banksinopac.com
123
Ending % of Interest % of
Balance Total Interest Rate Expense Total
SinoPac Venture Capital $ 547,291 0.07 0.3-1.75 $ 1,812 0.01TaiGen Biotechnology Company Ltd. 416,200 0.05 1.5-2.07 1,309 0.01Others 4,161,675 0.55 0-13 41,993 0.24
3) Other receivables
Ending Balance % of Total
December 31 December 31
2006 2005 2006 2005
Other receivables $ 15,311 $ 6,453 1.61 0.37
4) Financial assets at fair value through profit or loss
Ending Balance % of Total
December 31 December 31
2006 2005 2006 2005
Structured instruments - SinoPac Securities $ - $ 146,600 - 0.38Beneficiary certificate
SinoPac New Century Fund 67,727 50,000 0.25 0.13SinoPac Columbus Fund 65,507 36,000 0.25 0.09SinoPac Global Fixed Income Portfolio
Fund 228,046 - 0.85 -
5) Guarantees
The Bank had provided guarantees on commercial papers issued by SinoPac Securities. The aggregate face amountsof commercial paper were as follows:
December 31
2006 2005
SinoPac Securities $ 38,000 $ 35,000
Guarantees and credits on Wal Tech International were collateralized by the following assets provided by SPL:
December 31
2006 2005
Properties - carrying amount $ 1,094,976 $ 1,104,568
Guarantees and credits on SinoPac Securities were collateralized by the following assets provided by SinoPacSecurities:
December 31
2006 2005
Properties and leased assets - carrying amount $ 1,163,131 $ 1,173,521
Certificates of deposit 730,000 830,000
$ 1,893,131 $ 2,003,521
Guarantees and credits on Fortune Investment were collateralized by the following assets provided by FortuneInvestment:
124
Financial Report
December 31
2006 2005
Properties - carrying amount $ 59,653 $ 40,064
Stocks - fair value 121,355 8,253
6) Unquoted equity instrument
In coordination with restructure of the parent company - SPH, the Bank and subsidiaries transferred the followingunquoted equity instruments to SinoPac Venture Capital at book value in 2005.
Shares in
Thousands Book Value
Prudence International Fund Ltd. 5,000 $ 35,600Z-Com, Inc. 1,103 10,766Taiwan Leader Advanced Technology Co., Ltd. 1,560 10,436Chain Yarn Co., Ltd. 2,171 28,655
Tekcon Electronics Corp. 349 944Telexpress Corp. 525 6,282Walton Advanced Engineering, Inc. 1,527 11,300Best 3C.Com 600 -e21 Corp. 200 3,313SinoPac Financial Consulting Co., Ltd. 6 71Wal Tech International Corporation 26,500 147,341Telexpress Corp. 3,900 44,733
Source One 3,600 93,034Allstar Venture Ltd. (B.V.I.) 0.002 180,968
7) Held-to-maturity financial assets
The Bank purchased beneficiary certificates - credit card receivables from SinoPac Card Services. The maturity andfixed interest rate of the beneficiary certificates are February 20, 2009 and 3%, respectively, and the principal was asfollows:
December 31
2006 2005
Beneficiary certificates - credit card receivables $ 80,000 $ 80,000
8) Revenues and expenses
% of Total
Amount For the
For the Years Ended Years Ended
December 31 December 31
2006 2005 2006 2005
Service fees $ 17,810 $ 3,545 0.47% 0.07%
Project popularizing expense 246 410 0.01% 0.01%
Service expenses 16,311 410 0.01% 0.01%
9) Securities sold under agreements to repurchase
Face Amount Cost
December 31 December 31
2006 2005 2006 2005
Others
Securities sold under agreementsto repurchase $ 479,157 $ 564,200 $ 502,771 $ 580,713
www.banksinopac.com
125
10) Lease
a) As a lessee
The Bank and its subsidiaries had leased certain office premises from related parties under several contracts forvarious periods ranging from 1 to 15 years, with rentals paid monthly. The related information was summarizedas follows:
Rental Expenses
For the
Years Ended
December 31
Lessor 2006 2005 Lease Term Payment Frequency
Ruentex Development $ 3,300 $ 3,672 September 2010 Rentals paid monthly
b) As a lessor
Rental Income
For the
Years Ended
December 31
Lesse 2006 2005 Lease Term Payment Frequency
SPH $ 3,173 $ - November 2010 Rentals received monthlySinoPac Call Center 2,640 2,592 October 2007 Rentals received monthly
SinoPac Securities 4,167 2,469 November 2011 Rentals received monthlySinoPac Marketing Consulting 1,798 1,870 May 2007 Rentals received monthlySinoPac Asset Management 726 363 June 2010 Rentals received monthlySinoPac Card Services 6,158 243 September 2011 Rentals received monthlySinoPac Venture Capital 10 5 June 2010 Rentals received monthlyWalTech International 60 - June 2011 Rentals received monthly
11) Professional advisory charges
The Bank had entered into several professional advisory contracts with its investees. The professional advisorycharges paid for the years ended December 31, 2006 and 2005 amounted to $94,799 and $127,327, respectively.
12) Due from/to affiliates
As of December 31, 2006 and 2005, the Bank’s receivables from SinoPac Card Services amounted to $29,235 and$30,535, respectively.
As of December 31, 2006, the Bank’s receivable from sale of credit card business at book value to SinoPac Card
Services amounted to $4,136,864. Interest on the aforementioned receivable has been received using the short-termbills secondary market rate for thirty days plus 0.3%. The related interest receivable and interest revenues as of andfor the year ended December 31, 2006 were $13,482 and $38,082, respectively.
As of December 31, 2006 and 2005, the Bank’s estimated receivable resulting from the adoption of the linked-taxsystem as of December 31, 2006 and 2005 amounted to $371,259 and $97,082, respectively.
Furthermore, as of December 31, 2005 the Bank’s estimated payables resulting from the adoption of the linked-taxsystem amounted to $22,284
As of December 31, 2005, the Bank’s dividends receivable from SPH amounted to $102,577.
13) Asset transactions
For the years ended December 31, 2005, the Bank purchased structured instruments from SinoPac Securitiesamounted to $146,600.
14) In order to provide the customer-leading products and services, pursue the growth of market share and profit, SinoPacCard Services acquired IBT credit card business segment and its net assets at book value.
126
Financial Report
Item Amount
Receivables $ 5,545,530
Allowance for credit losses (330,323 )Other assets 297Payables (14,447 )Other liabilities (29,977 )
$ 5,171,080
As of December 31, 2006, accounts receivable for acquiring the credit card business segment of SinoPac CardServices was amounting to $4,136,864.
15) Derivative financial instruments
December 31, 2006
Contract
(Notional)
Amount Credit Risk Fair Value
Currency swap contracts
SPH $ 1,500,000 $ - $ (277)
For transactions between the Bank and related parties, the terms are similar to those transacted with unrelated partiesexcept for the preferential interest rates offered to employees for savings and loans up to prescribed limits.
Under the Banking Law, except for government and consumer loans, credit extended by the Bank to any related partyshould be fully secured, and the credit terms for related parties should be similar to those for unrelated parties.
For transactions between related parties with FENB and its subsidiaries, SinoPac Leasing and its subsidiary, andSinoPac Capital Limited and its subsidiaries, the terms are similar to those transacted with unrelated parties.
33. SIGNIFICANT CONTINGENCIES AND COMMITMENTS
In addition to those disclosed in Note 37, financial instruments, significant contingencies and commitments of the Bank and itssubsidiaries, are summarized as follows:
a. Lease contract
The Bank and its subsidiaries leased certain office premises under several contracts for various periods ranging from 1 to15 years, with rentals paid monthly, quarterly or semiannually. Rentals for the next five years are as follows:
Year Amount
2007 $ 404,183
2008 329,0352009 266,6772010 144,5472011 72,629
Rentals for the years beyond 2012 amount to $680,112, the present value of which is about $501,058 as discounted at theBank and FENB’s one-year time deposit rate of 2.20%-4.85% on January 1, 2007.
b. Equipment purchase contract
The Bank had entered into contracts to buy computer hardware and software for $129,867, of which $58,737 had alreadybeen paid as of December 31, 2006.
c. Interior decoration contract
The Bank had entered into interior decoration contracts for $34,553, of which $10,812 has already been paid as of
December 31, 2006.
www.banksinopac.com
127
d. Bills and bonds sold under agreements to repurchase
As of December 31, 2006, bills and bonds with a total face amount of $13,518,307 were sold under agreements torepurchase at $14,683,848 between January 2007 and May 2007.
e. Bills and bonds purchased under agreements to resell
As of December 31, 2006, bills and bonds with a total face amount of $6,558,338 were purchased under agreements toresell at $6,897,877 in January 2007.
f. The Securities and Futures Investors Protection Center (SFIPC) is believed by investors to be filing a lawsuit against theBank in the ground that Procomp Informatics Ltd. provided deposit with the Bank’s Sungshan Branch and limited theusage as a condition for short-term loan to Addie International Limited granted by SPL and for helping ProcompInformatics Ltd. window-dressing its financial statements. As of June 29, 2005, the SFIPC filed additional lawsuit againstthe Bank, SPL and all other parties related to Procomp Informatics Ltd. Case for compensation in the amount of$4,467,129. As a matter of fact, the Bank was authorized to engage in financing activities and did not help ProcompInformatics Ltd. window-dressing its the financial statements. According to the Bank attorney’s opinion, the claims fromSFIPC is without sufficient reason and the Bank does not need to compensate the investors for the damage.
g. The SFIPC is believed by investors to be filing a lawsuit against the Bank in the ground that National Aerospace FastenersCorporation provided an accounts receivable - factoring with the Bank’s Tunpei Branch and recorded the substantially loantransaction as an accounts receivable financing activity to window-dress its financial position which the investors madetheir investing decision based on since the third quarter, 2002. As of April 21, 2006, the SFIPC files lawsuit against theBank and all other parties for compensation in the amount of $570,000. The Bank has entered a plea on such charges andthe case is under trying in the count of first instance.
34. RESTATEMENT OF FINANCIAL STATEMENT
The Bank mergered with IBT on November 13, 2006. Under explanations (91) 243 and 244 issued by the ARDF of ROC, themerger should be treated as a recognization and should be recorded at the book value of both entities’ assets and liabilitiesbecause of the Bank and IBT are both 100% owned subsidiaries of SPH. In accordance with the interpretation No. (95) 141,the financial statements of Bank SinoPac should be retroactively restated assuming the assets and liabilities of IBT have beenincluded at book value. The Bank acquired net assets, amounted to $35,181,212 of IBT through a share swap at ratio of 1.175
shares and issued 2,612,390 thousand shares. The net assets were as follows:
Item Amount
Cash and cash equivalents $ 6,342,189Due from the central bank and other banks 15,714,110Financial assets at fair value through profit or loss 6,063,884Securities repurchased under agreement to resell 2,402,443Available-for-sale financial assets 52,027,862
Accounts, interest and other receivables, net 18,419,324Discounts and loans, net 280,008,538Held-to-maturity investments 1,408,522Equity investments - equity method 352,417Properties, net 4,894,493Other assets 2,934,318Other financial assets 1,519,023Call loans and due to banks (4,406,710 )
Accounts interest and other payables (4,850,796 )Accrued pension liability (450,506 )Other financial liability (394,356 )Deposits and remittances (322,750,636 )Due to the Central Bank and other banks (5,669,748 )Convertible bond (5,776,144 )Other liabilities (1,330,784 )Securities sold under agreements to repurchase (11,064,014 )
Financial liabilities at fair value through profit or loss (212,217 )
35,181,212
128
Financial Report
Item Amount
Cumulative translation adjustments $ (13,386 )Unrealized gain (loss) on financial instruments (155,072 )Unrecognized net loss as pension cost 221,269Unrealized revaluation increment on land (1,033,595 )Capital surplus due to merger (26,123,904 )
$ 8,076,524
The aforementioned assets will be used for operating purpose. The Bank does not have the plan to dispose any significantassets. The net income of Bank SinoPac for the year ended December 31, 2006 and 2005 included the net income of IBT forthe year ended December 31, 2006 and 2005.
35. AVERAGE AMOUNT AND AVERAGE INTEREST RATE OF INTEREST-EARNING ASSETS
AND INTEREST-BEARING LIABILITIES
Average balances were calculated by the daily average balances of interest-earning assets and interest-bearing liabilities of theBank and its subsidiaries, FENB, were as follow:
For the Year Ended
December 31, 2006
Average Average
Balance Rate (%)
Interest-earning assets
Due from other banks $ 30,154,153 2.39
Call loans to bank 59,422,285 3.55
Financial assets at fair value through profit or loss 34,756,193 2.44
Available-for-sale financial assets 152,642,815 1.68
Discounts and loans 626,472,640 4.04
Accounts receivable - factoring 14,032,713 5.32
Held-to-maturity investments 2,807,695 4.49
Securities purchased under agreement to resell 18,329,920 1.52
Other financial assets 2,313,965 6.02
Accounts receivable - revolving credit for credit card 3,095,159 18.45
Interest-bearing liabilities
Due to other banks 15,892,639 2.60
Call loans 55,932,344 3.48
Demand deposits 188,322,008 0.83
Savings - demand deposits 157,286,463 0.56
Time deposits 249,096,058 2.80
Savings - time deposits 195,888,351 1.98
Negotiable certificates of deposit 47,304,568 1.53
Securities sold under agreement to repurchase 29,023,767 1.92
Bank debentures 36,152,483 1.38
Other financial liabilities 503,180 0.63
Bank SinoPac and FENB
For the Year Ended
December 31, 2005
Average Average
Balance Rate (%)
Interest-earning assets
Due from other banks $ 5,116,202 3.10
Call loans to bank 38,730,745 2.66
Due from the Central Bank 7,540,379 1.50
www.banksinopac.com
129
For the Year Ended
December 31, 2005
Average Average
Balance Rate (%)
Securities purchased $ 76,654,878 1.65
Securities purchased under agreement to resell 20,185,592 1.51
Loans, discounts and bills purchased 312,497,395 3.90Accounts receivable from factoring 11,499,315 4.40Other long-term investments 12,717,435 2.95
Interest-bearing liabilities
Due to other banks 5,488,420 1.43Call loans 32,900,616 2.74Demand deposits 64,987,597 1.41Savings - demand deposits 76,159,873 0.49Time deposits 142,811,354 2.15Savings - time deposits 69,976,912 1.63
Negotiable certificates of deposit 28,527,012 1.26Securities sold under agreement to repurchase 13,465,088 1.58Bank debentures 33,448,914 1.91
IBTFor the Year Ended
December 31, 2005
Average Average
Balance Rate (%)
Interest-earning assets
Due from other banks $ 2,020,376 1.39Call loans to bank 14,837,610 2.92Due from the Central Bank 11,877,966 1.06Securities purchased under agreement to resell 3,862,586 1.32Securities purchased 75,717,894 1.73Loans, discounts and bills purchased 285,637,329 3.55Other long-term investments 326,470 2.06
Accounts receivable - revolving credit for credit card 3,154,624 17.88
Interest-bearing liabilities
Securities sold under agreement to repurchase 20,131,447 1.17Due to other banks 16,649,618 1.66Demand deposits 42,980,806 0.34Savings - demand deposits 76,354,184 0.63Time deposits 49,441,062 1.78Savings - time deposits 118,651,560 1.61Negotiable certificates of deposit 28,896,881 1.25
Borrowing from Central Bank and others 16,562,815 2.95Other liabilities - appropriated loan fund 374,153 0.75
36. FINANCIAL INSTRUMENTS
a. Fair value of financial instruments
December 31
2006 2005
Carrying
Amount Fair Value
Carrying
Amount Fair Value
Assets
Financial assets - with fair values approximatingcarrying amounts $ 177,236,732 $ 177,236,732 $ 180,519,510 $ 180,519,510
Financial assets at fair value through profit or loss 26,959,645 26,959,645 38,389,668 38,751,518Available-for-sale financial assets 181,574,806 181,574,806 124,674,889 124,797,772
130
Financial Report
December 31
2006 2005
Carrying
Amount Fair Value
Carrying
Amount Fair Value
Discounts and loans $ 630,958,806 $ 630,958,806 $ 647,954,349 $ 647,954,349Held-to-maturity financial assets 4,772,926 4,797,961 6,205,947 6,183,311Equity investment-equity method 186,528 186,528 171,232 124,101Other financial assets 6,608,308 6,601,675 3,940,353 4,020,073
Liabilities
Financial liabilities - with fair valuesapproximating carrying amounts 964,154,269 964,154,269 940,881,084 940,881,084
Financial liabilities at fair value through profitor loss 3,858,707 3,858,707 1,030,641 1,030,641
Other financial liabilities 4,880,359 4,880,359 4,644,722 4,644,722Other liabilities 4,624,971 4,624,971 5,351,482 5,351,482Bonds payable 5,736,896 6,124,136 5,849,080 6,104,977
Effective on January 1, 2006, the Bank and its subsidiaries adopted the Statement of Financial Accounting Standard No. 34“Accounting for Financial Instruments.” The amount of the cumulative effect resulting from the change to newaccounting principles refers to Note 3.
The gains (losses) on derivative financial instruments for the years ended December 31, 2006 and 2005 were as follows:
For the Years Ended
December 31
Account 2006 2005
For hedging purposes:Cross-currency swap contracts
- Realized Interest revenue $ 119,867 $ 252,649
Interest expense (710,586 ) (459,472 )
Foreign exchange loss 1,307 -
Interest rate swap contracts
- Realized Interest revenue 34,372 48,328
Interest expense (160,224 ) (88,297 )
Income from derivative financialinstruments transactions - 12,669
Foreign exchange gain (loss) (10,642 ) 41,967(725,906 ) (192,156 )
For the purposes of accommodatingcustomers’ needs or managing theBank’s exposures:
Forward contracts- Realized Interest revenue 299,583 474,627
Interest expense (103,451 ) (350,335 )
- Realized Foreign exchange gain 720 274,154
- Unrealized Foreign exchange loss (gain) (289,639 ) 539,171
- Unrealized Loss on derivative financialinstruments transactions (39,350 ) (1,972 )
Forward rate agreements- Realized Loss on derivative financial
instruments transactions - (487 )
- Unrealized Income from derivative financialinstruments transactions - 486
Currency swap contracts- Realized Interest revenue 3,658,611 2,613,841
Interest expense (2,638,603 ) (2,314,701 )
Loss on derivative financialinstruments transactions
(91,484 ) -
www.banksinopac.com
131
For the Years Ended
December 31
Account 2006 2005
- Unrealized Income from derivative financialinstruments transactions $ (73,303 )$ 90,949
Interest rate swap contracts- Realized Interest revenue 2,082,169 856,429
Interest expense (2,058,822 ) (888,810 )
- Realized Income from derivative financialinstruments transactions 16,058 9,147
- Unrealized (Loss on) income from derivativefinancial instruments transactions (69,393 ) 8,980
Foreign-currency options contracts- Realized Loss on derivative financial
instruments transactions (340,454 ) (395,411 )
Foreign exchange gain (loss) 484,258 (244,412 )
- Unrealized Income from (loss on) derivativefinancial instruments transactions 180,789 (660,359 )
Interest rate futures contracts- Realized Income from (loss on) derivative
financial instruments transactions 51,091 (2,422 )
- Realized Foreign exchange gain 697 336
- Unrealized Income from (loss on) derivativefinancial instruments transactions 290 (2,495 )
Cross-currency swap contracts- Realized Interest revenue 292,282 408,070
Interest expense (291,178 ) (406,123 )
Income from derivative financialinstruments transactions 485,169 271,266
- Unrealized Loss on derivative financialinstruments transactions (71,781 ) (2,836 )
Credit default swap contracts- Realized (Loss on) income from derivative
financial instruments transactions (20,660 ) 4,900- Unrealized Income from derivative financial
instruments transactions 4,588 -Swap contracts
- Realized Income from derivative financialinstruments transactions 4,104 1,125
1,472,291 283,118
$ 746,385 $ 90,962
b. Methods and assumptions applied in estimating the fair values disclosures for financial instruments are as follows:
1) The carrying amounts of cash and cash equivalent, due from the Central Bank and other banks, securities purchasedunder agreements to resell, receivables, call loans and due to banks, payables, short-term borrowings, commercialpaper payable, remittances and securities sold under agreements to repurchase approximate their fair values because of
the short maturities of these instruments.
2) Since long-term borrowings are interest-bearing liabilities at floating interest rate, their carrying amounts representfair values.
3) Long-term lease receivables are fixed interest-earning assets. Thus, their carrying amounts represent fair values.
4) For financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity investments
and hedged derivative financial instruments, fair value is best determined based upon quoted market prices.However, in many instances, there are no quoted market prices for the Bank’s various financial instruments. In caseswhere quoted market prices are not available, fair values are based on estimates using available indirect data andappropriate valuation methodologies.
132
Financial Report
Forward contracts’ and interest rate swap contracts’ fair values are based on estimates using present value techniques.
Options’ fair value are based on estimates using Black - Scholes model.
Fair value of forward contracts are estimated based on the forward rates provided by Reuters or the Associated Press.
Fair value of structured instruments are provided by the counter parties. All outstanding contracts are based onmatch basis and market risks will be offset.
Fair value of interest rate swap contracts and cross currency swap contracts are estimated based on the market
quotation provided by Reuters.
5) Discounts and loans, deposits, bank debentures and other financial liabilities are interest-earning assets andinterest-bearing liabilities at floating interest rate. Thus, their carrying amounts represent fair values. Fair value ofnonperforming loans is based on the carrying amount, which is net of allowance for credit losses.
6) When unquoted equity instruments which the Bank and its subsidiaries do not have significant influence over theinvestees do not have a quoted market price in an active market and whose fair value cannot be reliably measured, are
measured at cost.
c. Interest revenue of financial assets and liabilities other than those at fair value through profit or loss amounted to$37,404,373 and $20,213,001, respectively, for the years ended December 31, 2006 and 2005. Interest expense offinancial assets and liabilities other than those at fair value through profit or loss amounted to $20,525,915 and $17,220,570,respectively, for the years ended December 31, 2006 and 2005. Unrealized gains or losses on available-for-sale financialassets amounted to ($181,492) were charged to stockholders’ equity for the years ended December 31, 2006.
d. Financial risk information
1) Market risk
The Bank sets up risk managing indicators according to the characters of the products to achieve the goal of riskmanagement. The Bank and its subsidiaries evaluate market risk exposure limits approved by the board of directorsand informs related units when over the limits timely.
Fair value of financial assets and financial liabilities determined based upon quoted market prices or estimatessummarized as follows:
Quoted
Fair Value
Based on
Market Prices Estimates
December 31, 2006
Financial assets
Financial assets at fair value through profit or loss $ 17,930,767 $ 8,774,566
Available-for-sale financial assets 169,489,588 1,014,257
Held-to-maturity investments 2,122,684 214,500
Other financial assets 378,413 4,584,457
Financial liabilities
Financial liabilities at fair value through profit or loss 3,175,600 683,191
The Bank establishes various specialist committees in head office and oversea branches to perform the role ofimplementing the risk management policies and procedures. Each sub-risk management team audits limits onmonitoring and managing risk exposures under the respective supervision and reports to head office managementteam.
Market risk reports which include the monitor of outstanding position limitation of loss and quantitative measures ofrisk indicators are provided to risk management sector to manage risk exposure, risk premium and capital allocation.The indicators are calculated by the valuation models. The Bank uses the value-at-risk approach and Monte Carlo
simulation method to derive quantitative measures for the trading book market risks under normal condition.
The Bank formally documents in writing its intention to apply hedge accounting and follow the requirement of relatedaccounting standards. Risk management sector should assess the effectiveness of the hedge relationship periodically.
www.banksinopac.com
133
2) Credit risk
The Bank is exposed to credit risk in the event of default on contracts by counter-parties. The Bank makes creditcommitments and issues financial guarantees and standby letters of credit only after careful evaluation of customers’credit worthiness. On the basis of the result of the credit evaluation, the Bank may require collateral before drawingsare made against the credit facilities. As of December 31, 2006 and 2005, ratios of secured loans to total loans bothwere 59.6% and 62.2%. Ratio of secured financial guarantees and standby letters of credits were from 12.2% to12.4%. Collaterals held vary but may include cash, inventories, marketable securities, and other properties. Whenthe customers default, the Bank and its subsidiaries will, as required by circumstances, foreclose the collaterals orexecute other rights arising out of the guarantees given. Since most of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily represent future cash demands. Themaximum potential amount of future payments represents the notional amounts that could be lost under the guaranteesif there were a total default by the guaranteed parties, without consideration of possible recoveries under recourseprovisions or from collateral held or pledged.
The maximum credit exposure of the financial instruments (except for fair value of collaterals) held by the Bank andits subsidiaries equaled the book value except which analysed as follows:
December 31
2006 2005
Items
Carrying
Amount
Maximum
Credit
Exposure
Carrying
Amount
Maximum
Credit
Exposure
Off-balance-sheet credit riskFinancial guarantees and standby letter of
credit $ - $ 25,617,773 $ - $ 26,349,351
Undrawn loan commitments - 32,105,869 - 35,908,074
Credit card commitments - 55,638 - 45,575,666
The maximum credit exposure of counterparties presented above were evaluations on off-balance sheet credit riskcontracts with positive amounts on the balance sheet date. Concentrations of credit risk exist when changes ineconomic, industry or geographic factors similarly affect groups of counterparties whose aggregate credit exposure ismaterial in relation to the Bank’s total credit exposure. The Bank and its subsidiaries maintain a diversified portfolio,limits its exposure to any one geographic region, country or individual creditor and monitors the exposure on acontinuous basis. On December 31, 2006 and 2005, the Bank’ most significant concentrations of credit risk weresummarized as follows:
December 31
2006 2005
Credit Risk Profile by Counterparty
Carrying
Amount
Maximum
Credit
Exposure
Carrying
Amount
Maximum
Credit
Exposure
Private sector $ 281,757,324 $ 281,757,324 $ 209,385,139 $ 209,385,139
Consumer 351,934,341 351,934,341 351,118,923 351,118,923Government 29,139,346 29,139,346 36,128,896 36,128,896
$ 662,831,012 $ 662,831,012 $ 596,632,958 $ 596,632,958
December 31
2006 2005
Credit Risk Profile by Industry Sector
Carrying
Amount
Maximum
Credit
Exposure
Carrying
Amount
Maximum
Credit
Exposure
Electricity industry $ 70,824,196 $ 70,824,196 $ 71,192,406 $ 71,192,406Wholesale trade 39,963,529 39,963,529 45,348,865 45,348,865Insurance and real estate activities 33,936,912 33,936,912 29,481,598 29,481,598
$ 144,724,637 $ 144,724,637 $ 146,022,869 $ 146,022,869
134
Financial Report
December 31
2006 2005
Credit Risk Profile by Region
Carrying
Amount
Maximum
Credit
Exposure
Carrying
Amount
Maximum
Credit
Exposure
Domestic area $ 540,343,828 $ 540,343,828 $ 600,728,859 $ 600,728,859
Asia 14,511,155 14,511,155 8,675,094 8,675,094
North America 4,811,528 4,811,528 4,929,405 4,929,405
$ 559,666,511 $ 559,666,511 $ 614,333,358 $ 614,333,358
3) Liquidity risk
As of December 31, 2006 and 2005, the liquidity reserve ratio was 29.88% and 22.66%, respectively. The Bank andits subsidiaries have sufficient capital and working capital to execute all the obligation of contract and had no liquidityrisk. The possibility of the derivative financial instruments held by the Bank fail to liquidate quickly with minimal
loss in value is low.
The management policy of the Bank and its subsidiaries are to match in the contractual maturity profile and interestrate of its assets and liabilities. As a result of the uncertainty, the maturities and interest rates of assets and liabilitiesusually didn’t fully match. The gap may arise potential gain or loss.
The Bank and FENB applied appropriate way to group assets and liabilities. The maturity analysis of assets andliabilities was as follows:
December 31, 2006
Due in
Due
Between
One
Month and
Due
Between
Three
Months
Due
Between
Six
Months
Due
Between
One Year
and Due After
One
Month
Three
Months
and Six
Months
and
One Year
Seven
Years
Seven
Years Total
Assets
Cash and cash equivalents $ 26,019,722 $ - $ - $ - $ - $ - $ 26,019,722
Due from the Central Bankand other banks 94,589,626 3,462,866 814,916 325,966 - - 99,193,374
Financial assets at fair valuethrough profit or loss 26,712,873 - - - - - 26,712,873
Accounts, interest and otherreceivables 16,622,799 14,479,601 5,072,590 1,214,100 851,234 36,323 38,276,647
Securities purchased underagreements to resell 6,892,661 - - - - - 6,892,661
Discounts and loans 46,503,713 50,525,384 40,346,535 63,719,919 138,086,518 289,576,670 628,758,739
Non-active market debtinstruments 951,803 - - 64,737 1,005,501 1,428,983 3,451,024
Available-for-sale financial
assets 46,479,851 23,395,506 45,775,991 54,962,760 9,631,306 1,238,381 181,483,795
Held-to-maturityinvestments 58,663 162,980 - 163,266 3,946,981 441,036 4,772,926
Hedged derivative financialassets - - - - 411,174 - 411,174
$ 264,831,711 $ 92,026,337 $ 92,010,032 $ 120,450,748 $ 153,932,714 $ 292,721,393 $ 1,015,972,935
www.banksinopac.com
135
December 31, 2006
Due in
Due
Between
One
Month and
Due
Between
Three
Months
Due
Between
Six
Months
Due
Between
One Year
and Due After
One
Month
Three
Months
and Six
Months
and
One Year
Seven
Years
Seven
Years Total
Liabilities
Call loans and due to banks $ 67,291,939 $ 5,030,458 $ 1,705,112 $ 7,667,830 $ - $ - $ 81,695,339
Securities sold underagreements to repurchase 12,495,507 2,146,111 12,243 - - - 14,653,861
Payables 17,784,776 6,298,360 2,606,939 1,829,941 658,309 - 29,178,325
Financial liabilities at fairvalue through profit orloss 3,858,712 - - - - - 3,858,712
Deposits and remittance 165,002,915 127,887,016 207,259,766 214,521,508 84,627,732 - 799,298,937
Bank debentures - - - - 31,461,961 - 31,461,961
Bonds Payable - - - - 5,736,896 - 5,736,896
Hedge derivative financialliabilities - - - - 238,153 - 238,153
Net liquidity gap $ 266,433,849 $ 141,361,945 $ 211,584,060 $ 224,019,279 $ 122,723,051 $ - $ 966,122,184
Bank SinoPac and FENBDecember 31, 2005
Due Between
Due in One Year and Due After
One Year Five Years Five Years Total
Assets
Cash and cash equivalents $ 9,412,415 $ - $ - $ 9,412,415
Due from the Central Bank and otherbanks 76,475,234 - - 76,475,234
Securities purchased 86,413,047 - - 86,413,047
Receivables 26,989,967 - - 26,989,967
Securities purchased underagreements to resell 8,143,070 - - 8,143,070
Loans, discounts and bills purchased
(excluding nonperforming loans) 104,356,331 47,766,590 186,464,740 338,587,661
Other long-term investments 8,349,793 1,094,300 - 9,444,093
$ 320,139,857 $ 48,860,890 $ 186,464,740 $ 555,465,487
Liabilities
Call loans and due to banks $ 40,923,588 $ - $ - $ 40,923,588
Securities sold under agreements torepurchase 9,440,268 - - 9,440,268
Payables 16,576,500 - - 16,576,500
Deposits and remittances 386,838,305 50,431,786 - 437,270,091
Bank debentures 5,492,750 26,800,000 4,000,000 36,292,750
$ 459,271,411 $ 77,231,786 $ 4,000,000 $ 540,503,197
136
Financial Report
IBTDecember 31, 2005
Due Between
Due in One Year and Due After
One Year Five Years Five Years Total
Assets
Cash and cash equivalents $ 11,431,443 $ - $ - $ 11,431,443
Due from the Central Bank and otherbanks 24,225,015 - - 24,225,015
Securities purchased 67,825,083 - - 67,825,083
Receivables 13,214,458 - - 13,214,458
Securities purchased underagreements to resell 3,881,120 - - 3,881,120
Loans, discounts and bills purchased 99,988,016 103,386,830 104,213,893 307,588,739
Other long-term investments 85,748 346,058 - 431,806
$ 220,650,883 $ 103,732,888 $ 104,213,893 $ 428,597,664
Liabilities
Securities sold under agreements torepurchase $ 16,675,616 $ - $ - $ 16,675,616
Call loans and due to banks 37,507,999 - - 37,507,999
Payables 10,681,576 - - 10,681,576
Deposits and remittances 282,331,624 42,569,421 - 324,901,045
Bank debentures - 5,849,080 - 5,849,080
$ 347,196,815 $ 48,418,501 $ - $ 395,615,316
4) Cash flow risk and fair value risk arising from interest rate fluctuations
Interest rate risk is the risk to earnings and value of financial instruments caused by fluctuations in interest risk. Therisk is considered to be material to the Bank, and the Bank enters into interest rate swap contracts to manage the risk.
h. Fair value hedge
The Bank enters into interest rate swap contracts and cross currency swap contracts to hedge the risk the interest ratefluctuation of the bank debenture.
December 31
2006 2005
Hedged Items Hedging Instruments Notion Amount Fair Value Notion Amount Fair Value
Bank debentures Interest rate swap $ 11,200,000 $ (142,493 ) $ 13,616,000 $ (362,396 )
Cross currency swap 14,300,000 315,514 14,300,000 21,380
$ 25,500,000 $ 173,021 $ 27,916,000 $ (341,016 )
37. MARKET RISK CONTROL AND HEDGE STRATEGY
The Bank and its subsidiaries document the risk management policies, including overall operating strategies and risks controlphilosophy. The Bank and its subsidiaries’ overall risk management policies are to minimize the possibility of potentialunfavorable factors. The board of directors approves the documentation of overall risk management policies and specific riskmanagement policies; including exchange rate risk, interest rate risk, credit risk, derivative instruments transactions andmanagements. The board of directors review the policies regularly, and review the operation to make sure the Bank and itssubsidiaries’ policies are executed properly.
www.banksinopac.com
137
38. INFORMATION ON CONCENTRATION OF RISK - BANK SINOPAC AND FAR EAST NATIONAL BANK
The Bank and FENB have no concentrated credit risk in any industry, individual counter-party or group who engaged in similarbusiness activities. Industries with 5% or more of the outstanding loans as of December 31, 2006 and 2005 were as follows:
December 31
2006 2005
Amount % Amount %
Natural person $ 347,075,124 55 $ 345,415,339 53
Manufacturing 70,824,196 11 73,366,332 11
Retail, wholesale and etc. 39,963,529 6 42,509,901 7
Public sectors and government organizations industry 30,534,032 5 38,742,250 6
Banking, bills and industry 33,936,912 5 36,653,589 6
39. THE BANK’S ASSET QUALITY, CONCENTRATION OF CREDIT EXTENSIONS, INTEREST RATE
SENSITIVITY, PROFITABILITY AND MATURITY ANALYSIS OF ASSETS AND LIABILITIES
a. Asset quality(In Thousands of New Taiwan Dollars, %)
December 31, 2006 December 31, 2005
Item Amount
Overdue Loans/
Outstanding
Loan Balance
Amount
Overdue Loans/
Outstanding
Loan Balance
Overdue loans - class A $ 10,029,479 1.68 $ 7,590,984 1.24
Overdue loans - class B 2,649,108 0.44 1,323,958 0.22
Total overdue loans 12,678,588 2.13 8,914,942 1.46
Overdue loans with debt negotiation exemptedfrom reporting as a non-performing loan 390,928 - - -
Overdue receivables with debt negotiationexempted from reporting as a non-performingloan - - - -
Note 1: Overdue loans represent the amounts of reported overdue loans pursuant to “Regulations Governing theProcedures for Banking Institutions to Evaluate Assets and Deal with Non-performing/Non-accrued Loans”
issued by the MOF.
Note 2: Overdue loans - class A and class B represent the amounts of reported overdue loans as required by the BankingBureau letters dated April 19, 2005 (Ref. No. 0941000251).
Note 3: Overdue loans ratio = Overdue loans/Outstanding loans balance.
Note 4: Overdue loans and receivables with debt negotiated terms which have been performed are exempted from
reporting as non-performing loan under the requirement issued by the Banking Bureau dated April 25, 2006(Ref. No. 09510001270).
b. Concentration of credit extensions(In Thousands of New Taiwan Dollars, %)
December 31, 2006 December 31, 2005
Credit extensions to interested parties 15,165,148 6,337,397
Ratios of credit extensions to interestedparties
2.40 0.95
Ratios of credit extensions secured bypledged stocks
0.68 0.89
Industry Percentage Industry Percentage
Consumer 64.25% Consumer 61.90%
Manufacturing 13.96% Manufacturing 14.31%Industry concentration
Wholesaling and retailing 5.99% Wholesaling and retailing 6.71%
138
Financial Report
The interested parties mentioned on the above table refers to Banking Law Article 33-1
Note 1: Total credit consists of loans, discounts and bills purchased (including import and export bill negotiations),
acceptances, guarantees and prepaid factoring accounts receivable.
Note 2: Ratio of credit extensions to interested parties = Credit extensions to interested parties/Total credit extensions.
Note 3: Ratio of credit extensions secured by pledged stocks = Credit extensions secured by pledged stocks/Total creditextensions.
Note 4: Consist of the following industries required by the Central Bank: Agriculture, forestry, fishing and grazing;mining and soil excavation; manufacturing; utility and gas; construction; wholesale, retail, food and beverage;shipping, storage and communications; finance, insurance and real estate; general services and others.
c. Interest rate sensitivity information
Interest Rate Sensitivity (New Taiwan Dollars)
December 31, 2006
(In Thousands of New Taiwan Dollars, %)
Items1 to 90 Days
(Included)
91 to 180 Days
(Included)
181 Days to
One Year
(Included)
Over One Year Total
Interest-rate sensitive assets $ 374,506,719 $ 120,798,079 $ 154,375,668 $ 66,186,111 $ 715,866,577
Interest-rate sensitive liabilities 221,485,188 258,501,881 167,942,652 27,605,073 675,534,794
Interest-rate-sensitive gap 153,021,531 (137,703,802 ) (13,566,984 ) 38,581,038 40,331,783
Net worth 63,192,041
Ratio of interest-rate sensitive assets to liabilities 105.97%
Ratio of interest-rate sensitive gap to net worth 63.82%
Note 1: The above amounts included only New Taiwan dollar amounts held by the onshore branches of the Bank(i.e., excluding foreign currency).
Note 2: Interest-rate sensitive assets and liabilities mean the revenues or costs of interest-earnings assets andinterest-bearing liabilities are affected by interest-rate changes.
Note 3: Interest-rate sensitive gap = Interest-rate sensitive assets - Interest-rate sensitive liabilities.
Note 4: Ratio of interest-rate sensitive assets to liabilities = Interest-rate sensitive assets/Interest-rate sensitive liabilities
(in New Taiwan dollars).
Interest Rate Sensitivity (USD)
December 31, 2006
(In Thousands of U.S. Dollars, %)
Items1 to 90 Days
(Included)
91 to 180 Days
(Included)
181 Days to
One Year
(Included)
Over One Year Total
Interest-rate sensitive assets $ 3,052,968 $ 672,007 $ 426,867 $ 351,882 $ 4,503,724
Interest-rate sensitive liabilities 3,141,043 1,767,301 325,419 3,260 5,237,023
Interest-rate-sensitive gap (88,075 ) (1,095,294 ) 101,448 348,622 (733,299 )
Net worth 54,642
Ratio of interest-rate sensitive assets to liabilities 86%
Ratio of interest-rate sensitive gap to net worth (1,342.01% )
Note 1: The above amounts include only USD amounts held by the onshore branches, OBU and offshore branches of theBank, excludes contingent assets and contingent liabilities.
Note 2: Interest-rate sensitive assets and liabilities mean the revenues or costs of interest-earnings assets and
interest-bearing liabilities are affected by interest-rate changes.
Note 3: Interest-rate sensitive gap = Interest-rate sensitive assets - Interest-rate sensitive liabilities.
Note 4: Ratio of interest-rate sensitive assets to liabilities = Interest-rate sensitive assets/Interest-rate sensitive liabilities(in U.S. dollars).
www.banksinopac.com
139
d. Profitability (%)
Items
For the Year
Ended
December 31, 2006
For the Year
Ended
December 31, 2005
Before income tax 0.27 0.62Return on total assets
After income tax 0.26 0.50
Before income tax 4.16 8.92Return on net worth
After income tax 13.93 7.12
Profit margin 12.50 23.54
Note 1: Return on total assets = Income before (after) income tax/Average total assets.
Note 2: Return on net worth = Income before (after) income tax/Average net worth.
Note 3: Profit margin = Income after income tax/Total operating revenues.
Note 4: Income before (after) income tax represents income for the years ended December 31, 2006 and 2005.
e. Maturity analysis of asset and liabilities
Maturity Analysis of Asset and Liabilities (In New Taiwan Dollars)
December 31, 2006
(In Thousands of New Taiwan Dollars)
The Amount of Remaining Period to MaturityTotal
1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
Main capital inflow onmaturity
$908,833,259 $216,378,256 $ 72,362,442 $ 80,741,239 $112,593,581 $426,757,741
Main capital outflow onmaturity
921,663,991 158,298,618 132,239,192 198,203,380 223,087,324 209,835,477
Gap (12,830,732) 58,079,638 (59,876,750) (117,462,141) (110,493,743) 216,922,264
Note: The above amounts included only New Taiwan dollar amounts held in the onshore branches of the Bank(i.e.excludes foreign currency).
Maturity Analysis of Assets and Liabilities (In U.S. Dollars)
December 31, 2006
(In Thousands of U.S. Dollars)
The Amount of Remaining Period to MaturityTotal
1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
Capital inflow on maturity $ 8,776,291 $ 2,707,318 $ 2,386,063 $ 1,984,497 $ 1,348,663 $ 349,750
Capital outflow on maturity 8,926,696 4,042,573 1,810,920 1,571,823 1,275,130 226,250
Gap (150,405) (1,335,255) 575,143 412,674 73,533 123,500
Note 1: The above amounts are book value held by the onshore branches and offshore banking unit of the Bank in U.S.dollars, without off-balance amounts (for example, the issuance of negotiable certificate of deposits, bonds orstocks).
Note 2: If the overseas assets amounting to at least 10% of the total assets, there should be additional disclosures.
SinoPacDecember 31, 2005
(In Million of New Taiwan Dollars)
The Amount of Remaining Period to MaturityTotal
1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
Assets $ 493,666 $ 144,671 $ 44,977 $ 37,765 $ 28,332 $ 237,921
Liabilities 494,724 104,833 92,679 85,972 102,115 109,125
Gap (1,058 ) 39,838 (47,702 ) (48,207 ) (73,783 ) 128,796
Accumulated gap (1,058 ) 39,838 (7,864 ) (56,071 ) (129,854) (1,058 )
140
Financial Report
IBT
December 31, 2005
(In Million of New Taiwan Dollars)
The Amount of Remaining Period to MaturityTotal
1-30 Days 31-90 Days 91-180 Days 181-365 Days Over 1 Year
Assets $ 471,251 $ 96,681 $ 42,929 $ 26,848 $ 37,276 $ 267,517
Liabilities 471,379 103,466 51,330 54,898 79,713 181,972
Gap (128 ) (6,785 ) (8,401 ) (28,050 ) (42,437 ) 85,545
Accumulated gap (128 ) (6,785 ) (15,186 ) (43,236 ) (85,673 ) (128 )
Note: The above amounts included only New Taiwan dollar amounts held in the onshore branches of the Bank(i.e. excludes foreign currency).
40. STATEMENT OF CAPITAL ADEQUACY
(%)
December 31, 2005December 31,
2006 BSP IBT
Net eligible capital 70,412,031 38,116,753 35,983,078
Total risk-weighted assets 568,543,823 292,885,713 297,412,300
Capital adequacy ratios 12.38 13.01 12.10
Ratios of tier 1 capital to risk-weighted assets 11.00 9.42 11.94
Ratios of tier 2 capital to risk-weighted assets 1.59 3.72 0.57
Ratios of tier 3 capital to risk-weighted assets - - -
Ratios of the deduction from capital to risk-weighted assets (0.21 ) (0.13 ) (0.41 )
Ratios of common stockholders’ equity to total assets 6.49 5.28 8.41
Note: Capital adequacy ratio = Eligible capital/Risk-weighted assets pursuant to the Banking Law and related regulations.
41. INFORMATION REGARDING THE TRUST BUSINESS UNDER THE TRUST LAW
a. Balance sheets and trust properties of trust accounts
Balance Sheets of Trust Accounts
December 31, 2006 and 2005
Trust Assets 2006 2005 Trust Liabilities 2006 2005
Bank deposits $ 2,355,069 $ 1,479,301 Accrued expenses $ 957 $ -
Short-term investments 126,813,483 101,397,888 Payables 1,239 853
Receivables 54,746 105,562 Advancements 18,224 -
Prepayments 77 52 Other liabilities 59,764 -
Long-term investments 9,724,337 9,622,757 Trust capital 148,619,203 125,173,801
Properties 11,422,662 13,348,281 Cumulative earnings 1,768,246 1,370,221
Other assets 96,158 -
Net asset value of collectiveinvestment trust fund 1,101 591,034
Total trust assets $ 150,467,633 $ 126,544,875 Total trust liabilities $ 150,467,633 $ 126,544,875
Trust Properties of Trust Accounts
December 31, 2006 and 2005
Investment Portfolio 2006 2005
Bank deposits $ 2,355,069 $ 1,479,301
Short-term investments
Bonds 43,562,655 36,726,589
Common stock 4,864,916 4,375,413
Funds 78,385,912 60,295,886126,813,483 101,397,888
www.banksinopac.com
141
Investment Portfolio 2006 2005
Receivables $ 54,746 $ 105,562
Prepayments 77 52
Long-term investmentInvestment on bond 9,724,337 9,622,757
Real estate 11,422,662 13,348,281
Other assets 96,158 -
Net asset value of collective investment trust fund 1,101 591,034
Total $ 150,467,633 $ 126,544,875
Income Statement of Trust Accounts
For the Year Ended December 31, 2006
Amount
Trust revenueInterest revenue $ 269,883Rent revenue 230,468Cash dividends 284,643
Realized investment revenue 246,469Others 1,413Total trust revenue 1,032,876
Trust expensesTrust administrative expenses 32,074Maintenance expenses 1,682Insurance expenses 1,731Tax expenses 38,746
Interest expenses 285,261Service expenses 1,848OTC expenses 1,000Project popularizing expenses 1,659Realized investment loss 89,304Others 2,442Total trust expenses 455,747
Net income before income tax 577,129
Income tax expenses -Net income after income tax $ 577,129
b. The contents of operations of the trust business under the Trust Law: Please refer to Note 1.
42. INFORMATION RELATED TO BORROWERS, GUARANTORS AND COLLATERAL
PROVIDERS AS INTEREST PARTIES
December 31, 2006
Situation of ExerciseCategory Account Volume Amounts
Normal Overdue
Consumer loans (Note 1) 335 $ 196,286 $ 196,286 -
Loans for employees’ house mortgage 471 981,855 981,855 -
Other borrowers (Note 2) 849 13,987,007 13,984,290 $ 2,717
Guarantees 707 4,075,903 4,073,186 2,717
Collateral providers 1,624 23,963,622 23,963,622 -
December 31, 2005
Situation of ExerciseCategory Account Volume Amounts
Normal Overdue
Consumer loans (Note 1) 446 $ 302,555 $ 302,555 -
Loans for employees’ house mortgage 501 1,195,072 1,195,072 -
Other borrowers (Note 2) 819 5,582,050 5,579,333 $ 2,717
Guarantees 792 3,026,405 3,023,059 3,346
Collateral providers 1,508 9,808,545 9,808,545 -
142
Financial Report
Note 1:Consumer loans were regulated in the Banking Law Article 32.Note 2:Except for consumer loans and loans for employees’ house mortgage, the credits that borrowers as interest parties.
Note 3:The interest parties mentioned above is regulated in the banking Law Article 33-1.
43. CROSS SELLING INFORMATION
For the year ended December 31, 2006, the Bank charged SinoPac Securities for $988 as marketing and opening accounts andpaid SinoPac Securities $226 as real estate loan financing under cross selling business.
For the year ended December 31, 2006 and 2005, the Bank shared the operating equipment and building with SinoPac Securitiesunder cross selling business.
Account The Bank SinoPac Securities Total Allocation Method
2006
Rentals $1,890 $1,890 $3,780 Allocated by the actual usage of floor square
2005
Rentals $2,295 $1,665 $3,960 Allocated by the actual usage of floor square
44. SEGMENT AND GEOGRAPHIC INFORMATION
The Bank engages only in banking activities as prescribed by the Banking Law and has no single customer that accounts for10% or more of the Bank’s operating revenues. Thus, no industrial and customorial information disclosure is required.
The geographic information about the Bank for the year ended December 31, 2006 is as follows:
Adjustments
Domestic United States
Hong Kong
Area
and
Eliminations Total
Revenues from each geography $ 33,528,264 $ 4,559,907 $ 2,904,289 $ (220,034 ) $ 40,772,426
Segment income $ 980,279 $ 909,142 $ 931,549 $ (176,875 ) $ 2,644,095Income from equity investments - equity
method 14,984
Income before income tax $ 2,659,079
Identifiable assets $ 915,906,359 $ 72,445,274 $ 61,379,464 $ (1,836,934 ) $1,047,894,163Equity investments - equity method 186,528
Total assets $1,048,080,691
The geographic information about the Bank for the year ended December 31, 2005 is as follows:
Adjustments
Domestic United States
Hong Kong
Area
and
Eliminations Total
Revenues from each geography $ 27,924,986 $ 3,611,883 $ 2,506,716 $ (68,363 ) $ 33,975,222
Segment income $ 4,446,303 $ 1,093,989 $ 631,883 $ (174,878 ) $ 5,997,297Income from equity investments - equity
method (27,883)
www.banksinopac.com
143
Adjustments
Domestic United States
Hong Kong
Area
and
Eliminations Total
Income before income tax $ 5,969,414
Identifiable assets $ 895,927,302 $ 73,563,232 $ 54,365,641 $ (2,117,397 ) $1,021,738,778Equity investments - equity method 171,232
Total assets $1,021,910,010
45. ADDITIONAL DISCLOSURES
a. Following are the additional disclosures required by the SFB for the Bank and investees:
1) Financing provided: Table 1;
2) Endorsement/guarantee provided: Table 2;
3) Marketable securities held: Table 3;
4) Marketable securities acquired and disposed of, at costs or prices of at least NT$300 million or 10% of the issuedcapital: None;
5) Acquisition of individual real estate at costs of at least NT$300 million or 10% of the issued capital: None;
6) Disposal of individual real estate at prices of at least NT$300 million or 10% of the issued capital: None;
7) Financial asset securitization: Please refer to Note 10;
8) Allowance for service fees to related-parties amounting to at least NT$5 million: None;
9) Receivables from related parties amounting to at least NT$300 million or 10% of the issued capital: Table 4;
10) Sale of nonperforming loans amounting to at least NT$5 billion: None;
11) Other significant transactions which may affect the decisions of users of financial reports: None;
12) Names, locations, and other information of investees on which the Bank exercises significant influence: Table 5;
13) Derivative financial transactions: Except the disclosure in other footnotes, the derivative financial instruments of theBank are disclosed in Notes 6 and 36, and the derivative financial instrument transactions of Far East National Bank
(“FENB”, a wholly owned subsidiary of SinoPac Bancorp, which is a wholly owned subsidiary of the Bank) aresummarized below:
FENB engages in derivative financial instrument transactions mainly for accommodating customers’ needs andmanaging its exposure positions.
FENB is exposed to credit risk if the counter-parties default on the contracts on maturity date. FENB enters intocontracts with customers that have satisfied its credit approval process and have provided the necessary collateral.
Transactions are made within each customer’s credit line; guarantee deposits may be required, depending on thecustomer’s credit standing. Transactions with other banks are made within the trading limit set for each bank basedon the bank’s credit rating and its worldwide ranking. The associated credit risk has been considered in theevaluation of provision for credit losses.As of December 31, 2005, the contract amounts (or notional amounts), credit risks and fair values of outstandingcontracts were as follows:
144
Financial Report
December 31, 2006
Contract
(Notional)
Financial Instruments Amount Credit Risk Fair Value
For the purpose of accommodating customers’ needsor managing FENB’s exposures:
- Sell $ 3,357 $ 101 $ 36
December 31, 2005
Contract
(Notional)
Financial Instruments Amount Credit Risk Fair Value
For the purpose of accommodating customers’needs or managing FENB’s exposures:Interest rate swap $ 32,850 $ - $ (102Currency swap contracts 423,420 62 62
Forward contracts- Sell 19,506 1,044 (1
The fair value of each contract is determined on the basis of quotations from Reuters or the Telerate InformationSystem.
The notional amounts of derivative contracts are used solely for the purpose of calculating receivables and payables toall contract parties. Thus, the notional amounts do not represent the actual cash inflows or outflows. The
possibility that derivative financial instruments held or issued by FENB cannot be sold at reasonable prices is remote;thus, no significant cash demand is expected.
b. Information related to investment in Mainland China: None.
)
)
www.banksinopac.com
145
TABLE 1
BANK SINOPAC AND INVESTEES
FINANCING PROVIDED
YEARS ENDED DECEMBER 31, 2006
(In Thousands of New Taiwan Dollars)
Collateral
No.Financing
Name
Counter-
party
Financial
Statement
Account
Maximum
Balance
for the
Period
Ending
Balance
Interest
Rate (%)
Financing
Type
Transaction
Amount
Financing
Reasons
Allowance
for Bad
DebtItem Value
Financing
Limit for
Each
Borrowing
Company
Financing
Company’s
Financing
Amount
Limits
1 SinoPac LeasingCorporation
Wal- Tech InternationalCorporation
Other receivable -related parties
$ 184,000 $ 165,000 2.25%-2.42% Short-termfinancing
$ - Repay ofborrowings
$ 825 - $ - $ 300,000(Note 1)
$ 890,471(Note 2)
Note 1: According to the Operational Procedures for Making Loans to Others, the financing limit for the borrowing company is30% of the audited net asset value $2,226,178 of SinoPac Leasing Corporation as of December 31, 2006. The maximumamount passed by the board of directors is $300,000.
Note 2: According to the Operational Procedures for Making Loans to Others, the financing company’s financing amount limits are40% of the audited net asset value $2,226,178 of SinoPac Leasing Corporation as of December 31, 2006.
TABLE 2
BANK SINOPAC AND INVESTEES
ENDORSEMENT/GUARANTEE PROVIDED
YEARS ENDED DECEMBER 31, 2006
(In Thousands of New Taiwan Dollars)
Counter-party
No.Endorsement/Guarantee
Provider NameNature of
Relationship
Limits on
Individual
Endorsement/
Guarantee
Amounts
Maximum
Balance for
the Period
Ending
Balance
Endorsement/
Guarantee
Amount
Collateralized
by Properties
Ratio of
Accumulated
Amount of
Endorsement/
Guarantee to Net
Asset Value of the
Latest Financial
Statement
(Note 4)
Maximum
Endorsement/
Guarantee
Amounts
Allowable
1 SinoPac LeasingCorporation
Grand CapitalInternational
Limited
Subsidiary (Note 3) $ 7,366,696 $ 7,366,696 - 330.91% (Note 5)
Wal Tech
International
Corporation
Affiliate (Note 3) 392,000 392,000 - 1.76% (Note 5)
Note 1: Foreign-currency amounts were translated to New Taiwan dollars at the exchange rate as of December 29, 2006.
Note 2: The audited net asset value of SinoPac Leasing Corporation as of December 31, 2006 is $2,226,178.
Note 3: The limit on individual endorsement or guarantee amounts is up to 200% of the net asset value of the Corporation. As ofDecember 31, 2006, the limit was $4,452,356. But no limit applied on any subsidiary of the Corporation.
Note 4: The net asset value of SinoPac Leasing Corporation was based on its audited financial statements as of December 31, 2006.
Note 5: The maximum amount of endorsement or guarantee amounts is up to 500% of the net asset value (Note 4) of the
Corporation. As of December 31, 2006, the limit was $11,130,890. But no limit applied on any subsidiary of theCorporation.
146
Financial Report
TABLE 3
BANK SINOPAC AND INVESTEES
MARKETABLE SECURITIES HELD
DECEMBER 31, 2006
(In Thousands of New Taiwan Dollars, Unless Otherwise Specified)
December 31, 2006Name of Holding
Company
Type and Name of Marketable
SecuritiesRelationship
Financial Statement
AccountShares/Units/
Face Amount
(In Thousand)
Carrying Amount(Note 1)
Percentage ofOwnership
Market Value or Net
Asset Value
(Note 1)
Note
SinoPac Bancorp StockFar East National Bank Subsidiary Equity investments -
equity method
180 $ 6,557,400 100.00% $ 6,557,400 Note 4
SinoPac Financial Service (USA)
Ltd.
Subsidiary Equity investments -
equity method
2.5 27,898 100.00% 27,898 Note 4
Far East CapitalCorporation
Stock (common stock)
PCRS Capital Partners, LLC - Unquoted equityinvestments
- 1,342 4.00% 1,342 Note 5
TVIA, Inc. - Unquoted equity
investments
33 1,119 0.20% 1,119 Note 5
Metropolos Digital - Unquoted equity
investments
1,257 - 8.00% - Note 5
Stock (preferred stock)
AgraQuest, Inc. - Unquoted equityinvestments
100 880 0.80% 880 Note 5
Silicon Motion, Inc. - Unquoted equityinvestments
11 1,793 0.10% 1,793 Note 5
Zone Reactor, Inc. - Unquoted equityinvestments
23 1,098 1.50% 1,098 Note 5
iPhysician Net, Inc. - Unquoted equityinvestments
115 - 0.30% - Note 5
Softknot Corporation - Unquoted equity
investments
250 - 2.00% - Note 5
SinoPac LeasingCorporation
Stock
Grand Capital InternationalLimited
Subsidiary Equity investments -equity method
29,900 592,094 100.00% 592,094 Note 4
Fund
SinoPac Global Fixed IncomePortfolio Fund
Affiliate Trading financial assets -current
10,000 102,260 NA 102,260 Note 3
SinoPac Capital
Limited
Stock
(Hong Kong) SinoPac Capital (B.V.I.) Ltd. Subsidiary Equity investments -equity method
4,450 183,882 100.00% 183,882 Note 4
SinoPac Insurance Brokers Ltd. Subsidiary Equity investments -equity method
100 10,158 100.00% 10,158 Note 4
Suga International - Trading financial assets 5,644 15,382 2.48% 15,382 Note 2
China-Metal - Trading financial assets 300 3,434 0.03% 3,434 Note 2
Wealthmark - Trading financial assets 15,327 23,135 4.62% 23,135 Note 2
Magna Chip - Available-for-sale
financial assets
15.577663 58,673 - 58,673 Note 2
Bestfield Enterprises Ltd. - Financial assets at fair
value through profitor loss
38 50,513 - 50,513 Note 2
Ferro China Ltd. - Financial assets at fair
value through profitor loss
2,300 56,259 - 56,259 Note 2
Fund
China Enterprise Capital - Available-for-salefinancial assets
20 32,596 - 32,596 Note 3
SinoPac Capital
(B.V.I.) Ltd.
Stock
Shanghai International Asset
Management (Hong Kong)Co., Ltd.
Subsidiary Equity investments -
equity method
4,800 20,570 60.00% 20,570 Note 4
www.banksinopac.com
147
December 31, 2006Name of Holding
Company
Type and Name of Marketable
SecuritiesRelationship
Financial Statement
AccountShares/Units/
Face Amount
(In Thousand)
Carrying Amount
(Note 1)
Percentage of
Ownership
Market Value or Net
Asset Value
(Note 1)
Note
Pinnacle Investment Management
Ltd.
Subsidiary Equity investments -
equity method
200 $ 3,581 100.00% $ 3,581 Note 4
RSP Information ServiceCompany Limited
Subsidiary Equity investments -equity method
1,000 2,774 100.00% 2,774 Note 4
SinoPac Property
Insurance Agent
Bond
Government bond - Guarantee deposits 600 654 - 800 Pledge
SinoPac Life
Insurance Agent
Bond
Government bond - Guarantee deposits 600 654 - 800 Pledge
Note 1: Foreign-currency amounts were translated to New Taiwan dollars at the exchange rate as of the balance sheet date.
Note 2: Market prices of listed and GreTai Securities Market stocks were determined by closing prices as of December 31, 2006.
Note 3: Net asset values were based on the net asset value as of the balance sheet date.
Note 4: Net asset values were based on the investees’ audited financial statements for the latest period.
Note 5: Net asset values were based on the carrying amounts.
TABLE 4
BANK SINOPAC AND INVESTEES
RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$300 MILLION OR 10% OF THE
ISSUED CAPITAL
DECEMBER 31, 2006
(In Thousands of New Taiwan Dollars)
Overdue
Company Name Related Party RelationshipEnding
Balance
Turnover
Rate AmountAction
Taken
Amounts
Received in
Subsequent
Period
Allowance
for Bad
Debts
Bank SinoPac SinoPac CardServices
Subsidiary ofSinoPacFinancial
HoldingsCompanyLimited
$ 4,136,864 - $ - - $ 827,373 $ -
SinoPac FinancialHoldingsCompanyLimited
The parentcompany of theBank
371,259 - - - - -
148
Financial Report
TABLE 5
BANK SINOPAC AND INVESTEES
NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES
SIGNIFICANT INFLUENCE
FOR THE YEARS ENDED DECEMBER 31, 2006
(In Thousands of New Taiwan Dollars, Unless Otherwise Specified)
Original Investment Amount Balance as of December 31, 2006
Investor Company Investee Company LocationMain Businesses and
ProductsDecember 31,
2006 (Note 1)
December 31,
2005 (Note 1)
Shares
(Thousand)
Percentage of
Ownership
(%)
Carrying
Amount
(Note 2)
Net Income
(Loss) of the
Investee(Note 2)
Investment
Gains (Loss)
(Note 2)
Invested by
the Same
Person, theSame
Related
Person
Note
Bank SinoPac SinoPac Bancorp California Stock holding US$112,306 US$112,306 20 100 $ 6,331,377 $ 562,087 $ 559,820 Subsidiary
SinoPac Leasing
CorporationTaipei
Leasing and installment
sales$ 999,940 $ 999,940 176,689.62 99.7683 1,164,525 95,821 62,396 Subsidiary
SinoPac Capital Limited Hong KongMoney lending, investment
dealing and trade
financing
HK$229,998 HK$229,998 229,998 99.9991 1,014,666 132,118 139,437 Subsidiary
SinoPac Financial
Consulting Co., Ltd.Taipei
Investment advisory and
business management
advisory
$ 1,940 $ 1,940 194 97.00 2,311 58 56 Subsidiary
SinoPac Life Insurance
AgentTaipei Life insurance agent 2,000 2,000 300 100.00 12,533 18,274 7,010 Subsidiary
SinoPac Property
Insurance AgentTaipei Property insurance agent 2,000 2,000 300 100.00 168,329 210,103 112,114 Subsidiary
Grand Cathay Securities
Investment Trust Co.,Ltd.
Taipei
Establish and manage
securities investment trustfund by issuing
beneficiary certificates
225,000 225,000 8,250 24.68 184,217 60,486 14,928 Subsidiary
SinoPac Bancorp Far East National Bank California Commercial bank US$112,714 US$112,714 180 100 6,557,400 594,522 - Affiliate
SinoPac Financial
Service (USA) Ltd.California Securities brokerage US$ 25 US$ 25 2.5 100 27,898 (20,984) - Affiliate
Far East National
Bank
Far East Capital
CorporationCalifornia Investment bank US$ 3,500 US$ 3,500 350 100 57,695 2,131 - Affiliate
SinoPac Leasing
Corporation
Grand Capital
International Limited
British
VirginIslands
Leasing and installment
salesUS$ 29,900 US$ 29,900 29,900 100 592,094 48,821 Affiliate
SinoPac Capital
Limited
SinoPac Capital (B.V.I.)
Ltd.
British
VirginIslands
Financial advisory US$ 4,450 US$ 4,450 4,450 100 183,882 11,828 Affiliate
SinoPac Insurance
Brokers Ltd.Hong Kong Insurance brokerage HK$ 300 HK$ 300 100 100 10,158 8,317 Affiliate
SinoPac Capital
(B.V.I.) Ltd.
Shanghai International
Asset Management(Hong Kong) Co.,
Ltd.
Hong Kong Asset management HK$ 10,000 HK$ 10,000 4,800 60 20,570 (5,893) Affiliate
Pinnacle InvestmentManagement Ltd.
Hong KongAsset management, trust
and consultingHK$ 1,560 HK$ 1,560 200 100 3,581 (120) Affiliate
RSP Information
Service CompanyLimited
Hong KongGeneral trading and
providing internet -based service
HK$ 1,000 HK$ 1,000 1000 100 2,774 733 Affiliate
Note 1: The original investment amounts were expressed in respective foreign currencies denominated.
Note 2: Foreign-currency amounts were translated at the exchange rate as of the balance sheet date, except for foreign-currency-denominated income and expenses, whichwere translated to New Taiwan dollars at the average exchange rate for the year ended December 31, 2006.
www.banksinopac.com
149
TABLE 6
BANK SINOPAC AND INVESTEES
CONSOLIDATED ENTITIES
YEARS ENDED DECEMBER 31, 2006
Percentage of OwnershipInvestor Company Subsidiaries Main Businesses No. December
31, 2006
No. December
31, 2005
Note
Bank SinoPac Bank SinoPac Commercial bank 1 - 1 -
SinoPac Bancorp Bank holding 2 100.00% 2 100.00%
SinoPac Leasing
Corporation
Leasing and installment sales 3 99.7683% 3 99.7683%
SinoPac Capital Limited Money lending, investment dealing andtrade financing
4 99.9991% 4 99.9991%
SinoPac Life InsuranceAgent
Life insurance agent 5 100.00% 5 100.00%
SinoPac Property InsuranceAgent
Property insurance 6 100.00% 6 100.00%
SinoPac Bancorp Far East National Bank Commercial bank 7 100.00% 7 100.00%
SinoPac Financial Services(USA) Ltd.
Securities brokerage 8 100.00% 8 100.00%
Far East NationalBank
Far East CapitalCorporation
Investment bank 9 100.00% 9 100.00%
SinoPac LeasingCorporation
Grand Capital InternationalLimited
Leasing and installment sales 10 100.00% 10 100.00%
SinoPac CapitalLimited (HongKong)
SinoPac Capital (B.V.I.)Ltd.
Financial advisory 11 100.00% 11 100.00%
SinoPac Insurance BrokersLtd.
Insurance brokerage 12 100.00% 12 100.00%
SinoPac (Hong Kong)Nominees Ltd.
Custody securities - - 13 100.00% Note 1
SinoPac Capital(B.V.I.) Ltd.
Shanghai InternationalAsset Management
(Hong Kong) Co., Ltd.
Custody assets 13 60.00% 14 60.00%
Pinnacle InvestmentManagement Ltd.
Asset management, trust and consulting 14 100.00% 15 99.9995%
RSP Information ServiceCompany Limited
General trading and providing internet -based service
15 100.00% 16 99.9999%
Note 1: SinoPac (Hong Kong) Nominees Ltd. was liquidated in 2006.
150
Financial Report
TABLE 7
BANK SINOPAC AND INVESTEES
SUBSIDIARIES EXCLUDED IN CONSOLIDATED ENTITIES
YEARS ENDED DECEMBER 31, 2006
Percentage of
OwnershipInvestor Company Subsidiaries Main Businesses
December
31, 2006
December
31, 2005
Note
Bank SinoPac SinoPac FinancialConsulting Co., Ltd.
Investment advisory and business managementadvisory
97.00% 97.00% Note 1
Grand Cathay SecuritiesInvestment Trust Co.,Ltd.
Establish and manage securities trust fund byissuing beneficiary certificate
24.68% 24.68%
Note 1: Bank SinoPac acquired 97% ownership of and had ability to control SinoPac Financial Consulting Co., Ltd. However, thetotal capital of SinoPac Financial Consulting Co., Ltd. amounted to $2,000, representing less than 1%o of the Company, andthe total assets is less than 0.5%o of the total assets of the Company. Thus, the SinoPac Financial Consulting Co., Ltd. isnot included in the consolidated entities.
TABLE 8
BANK SINOPAC AND INVESTEES
RELATED PARTIES TRANSACTIONS
YEARS ENDED DECEMBER 31, 2006
(In Thousands of New Taiwan Dollars)
2006
Description of TransactionsNo.(N ote 1)
Transaction
CompanyCounter-party
Nature of
Relationship
(Note 2)Financial Statement
Account
Transaction
AmountTransaction
Item
Percentage of Consolidated
Revenue/Assets
(Note 3)
0 Bank SinoPac SinoPac Bancorp andsubsidiaries
1 Due from other banks $ 45,534 (Note 4) 0.00%
SinoPac Bancorp andsubsidiaries
1Financial liabilities at
fair value through
profit or loss
79 (Note 4) 0.00%
SinoPac LeasingCorporation andsubsidiaries
1Financial assets at fair
value through profitor loss
165 (Note 4) 0.00%
SinoPac LeasingCorporation andsubsidiaries
1 Interest receivable 6,740 (Note 4) 0.00%
Interest payable 146 (Note 4) 0.00%
SinoPac LeasingCorporation andsubsidiaries
1 Discounts and loans 1,411,536 (Note 4) 0.13%
SinoPac LeasingCorporation andsubsidiaries
1 Guarantee deposits 6,694 (Note 4) 0.00%
SinoPac LeasingCorporation and
subsidiaries
1 Accrued expenses 962 (Note 4) 0.00%
www.banksinopac.com
151
Description of TransactionsNo.(N ote 1)
Transaction
CompanyCounter-party
Nature of
Relationship
(Note 2)Financial Statement
Account
Transaction
AmountTransaction
Item
Percentage of Consolidated
Revenue/Assets
(Note 3)
SinoPac LeasingCorporation andsubsidiaries
1 Deposits andremittances
$ 96,548 (Note 4) 0.01%
SinoPac Capital
Limited andsubsidiaries
1 Deposits and
remittances
42,399 (Note 4) 0.00%
SinoPac LifeInsurance Agent
1 Deposits andremittances
209,479 (Note 4) 0.02%
SinoPac PropertyInsurance Agent
1 Deposits andremittances
16,643 (Note 4) 0.00%
SinoPac LeasingCorporation and
subsidiaries
1 Interest revenue 47,121 (Note 4) 0.28%
SinoPac CapitalLimited andsubsidiaries
1 Other net revenue 3,015 (Note 4) 0.02%
SinoPac LeasingCorporation andsubsidiaries
1 Rental revenue 4,374 (Note 4) 0.03%
SinoPac Capital
Limited andsubsidiaries
1 Interest expense 4,678 (Note 4) 0.03%
SinoPac LeasingCorporation andsubsidiaries
1 Interest expense 1,158 (Note 4) 0.01%
SinoPac LeasingCorporation and
subsidiaries
1 Operating expenses 78,184 (Note 4) 0.46%
SinoPac LifeInsurance Agent
1 Interest expense 328 (Note 4) 0.00%
SinoPac LifeInsurance Agent
1 Service fees 12,238 (Note 4) 0.07%
SinoPac PropertyInsurance Agent
1 Interest expense 203 (Note 4) 0.00%
1SinoPac Bancorp
and subsidiaries
Bank SinoPac 2 Due to banks 45,534 (Note 4) 0.00%
Bank SinoPac 2 Financial liabilities atfair value throughprofit or loss
79 (Note 4) 0.00%
2SinoPac Leasing
Corporation andBank SinoPac 2 Cash and cash
equivalents96,548 (Note 4) 0.01%
subsidiaries Bank SinoPac 2 Receivables 962 (Note 4) 0.00%Bank SinoPac 2 Long-term borrowings 690,000 (Note 4) 0.07%Bank SinoPac 2 Short-term borrowings 721,536 (Note 4) 0.07%Bank SinoPac 2 Interest receivable 146 (Note 4) 0.00%Bank SinoPac 2 Financial assets at fair
value through profitor loss
165 (Note 4) 0.00%
Bank SinoPac 2 Interest payable 6,740 (Note 4) 0.00%
Bank SinoPac 2Guarantee deposits
reserved6,694 (Note 4) 0.00%
Bank SinoPac 2 Interest revenue 1,158 (Note 4) 0.01%Bank SinoPac 2 Rental revenue 78,184 (Note 4) 0.46%Bank SinoPac 2 Rental expense 4,374 (Note 4) 0.03%Bank SinoPac 2 Interest expense 47,121 (Note 4) 0.28%
152
Financial Report
Description of Transactions
No.(N ote 1)
Transaction
CompanyCounter-party
Nature of
Relationship
(Note 2)Financial Statement
Account
Transaction
AmountTransaction
Item
Percentage of
Consolidated
Revenue/Assets
(Note 3)
SinoPac LifeInsurance Agent
1 Rental revenue$ 13,373 (Note 4) 0.08%
3SinoPac Capital
Limited andBank SinoPac
2Cash and cash
equivalents42,399 (Note 4) 0.00%
subsidiaries Bank SinoPac 2 Interest revenue 4,678 (Note 4) 0.03%Bank SinoPac 2 Operating expenses 3,015 (Note 4) 0.02%
4SinoPac Life
Insurance AgentBank SinoPac 2
Cash and cashequivalents
209,479 (Note 4) 0.03%
Bank SinoPac 2 Interest revenue 328 (Note 4) 0.00%Bank SinoPac 2 Operating expenses 12,238 (Note 4) 0.07%SinoPac Leasing
Corporation andsubsidiaries
2 Operating expenses 13,373 (Note 4) 0.53%
5SinoPac Property
Insurance AgentBank SinoPac 2
Cash and cashequivalents
16,643 (Note 4) 0.00%
Bank SinoPac 2 Interest revenue 203 (Note 4) 0.00%
2005
Description of Transactions
No.(N ote 1)
Transaction
CompanyCounter-party
Nature of
Relationship
(Note 2)Financial Statement
Account
Transaction
AmountTransaction
Item
Percentage of
Consolidated
Revenue/Assets
(Note 3)
0 Bank SinoPac SinoPac Bancorp andsubsidiaries
1 Due from other banks $ 63,413 (Note 4) 0.01%
SinoPac LeasingCorporation andsubsidiaries
1 Interest receivable 682 (Note 4) 0.00%
SinoPac LeasingCorporation andsubsidiaries
1 Loans, discounts andbills purchased
1,283,760 (Note 4) 0.13%
SinoPac Leasing
Corporation andsubsidiaries
1 Guarantee deposits 6,694 (Note 4) 0.00%
SinoPac LeasingCorporation andsubsidiaries
1 Accrued expenses 942 (Note 4) 0.00%
SinoPac LeasingCorporation andsubsidiaries
1 Deposits and remittances 125,895 (Note 4) 0.01%
SinoPac CapitalLimited andsubsidiaries
1 Deposits and remittances 50,808 (Note 4) 0.00%
SinoPac CapitalLimited andsubsidiaries
1 Loans, discounts andbills purchased
197,100 (Note 4) 0.02%
SinoPac LifeInsurance Agent
1 Deposits and remittances 120,482 (Note 4) 0.01%
SinoPac PropertyInsurance Agent
1 Deposits and remittances 13,256 (Note 4) 0.00%
www.banksinopac.com
153
Description of Transactions
No.(N ote 1)
Transaction
CompanyCounter-party
Nature of
Relationship
(Note 2)Financial Statement
Account
Transaction
AmountTransaction
Item
Percentage of
Consolidated
Revenue/Assets
(Note 3)
SinoPac LeasingCorporation andsubsidiaries
1 Interest revenue $ 48,872 (Note 4) 0.29%
SinoPac CapitalLimited andsubsidiaries
1 Operating revenues 2,484 (Note 4) 0.01%
SinoPac Life
Insurance Agent
1 Operating revenues 11,357 (Note 4) 0.07%
SinoPac LeasingCorporation andsubsidiaries
1 Rental revenue 3,049 (Note 4) 0.02%
SinoPac CapitalLimited andsubsidiaries
1 Interest revenue 12,212 (Note 4) 0.07%
SinoPac Life
Insurance Agent
1 Service fees 19,142 (Note 4) 0.11%
SinoPac CapitalLimited andsubsidiaries
1 Interest expense 2,140 (Note 4) 0.00%
SinoPac LeasingCorporation andsubsidiaries
1 Interest expense 681 (Note 4) 0.00%
SinoPac Leasing
Corporation andsubsidiaries
1 Operating costs and
expenses
70,121 (Note 4) 0.42%
SinoPac CapitalLimited andsubsidiaries
1 Project administrationand service fee
34,130 (Note 4) 0.20%
1 SinoPac Bancorpand subsidiaries
Bank SinoPac 2 Due to banks 63,413 (Note 4) 0.01%
SinoPac Capital
Limited andsubsidiaries
2 Operating costs and
expenses
10,842 (Note 4) 0.06%
2 SinoPac LeasingCorporation and
Bank SinoPac 2 Cash and cashequivalents
125,893 (Note 4) 0.01%
subsidiaries Bank SinoPac 2 Receivables 942 (Note 4) 0.00%Bank SinoPac 2 Short-term borrowings 1,283,760 (Note 4) 0.13%Bank SinoPac 2 Interest payable 682 (Note 4) 0.00%
Bank SinoPac 2 Guarantee depositsreserved
6,694 (Note 4) 0.00%
Bank SinoPac 2 Interest revenue 681 (Note 4) 0.00%SinoPac Capital
Limited andsubsidiaries
2 Interest revenue 3,660 (Note 4) 0.02%
Bank SinoPac 2 Rental revenue 69,683 (Note 4) 0.42%Bank SinoPac 2 Service fees 438 (Note 4) 0.00%Bank SinoPac 2 Rental expense 3,049 (Note 4) 0.02%
Bank SinoPac 2 Interest expense 46,514 (Note 4) 0.28%SinoPac Capital
Limited andsubsidiaries
2 Operating expenses 3,230 (Note 4) 0.02%
Bank SinoPac 2 Nonoperating expensesand losses
2,358 (Note 4) 0.01%
3 SinoPac CapitalLimited and
Bank SinoPac 2 Cash and cashequivalents
50,808 (Note 4) 0.00%
subsidiaries Bank SinoPac 2 Short-term borrowings 197,100 (Note 4) 0.02%Bank SinoPac 2 Operating revenues 36,270 (Note 4) 0.22%
154
Financial Report
Description of Transactions
No.(N ote 1)
Transaction
CompanyCounter-party
Nature of
Relationship
(Note 2)Financial Statement
Account
Transaction
AmountTransaction
Item
Percentage of
Consolidated
Revenue/Assets
(Note 3)
SinoPac Bancorp andsubsidiaries
2 Operating revenues 10,842 (Note 4) 0.06%
SinoPac LeasingCorporation andsubsidiaries
2 Operating revenues 3,230 (Note 4) 0.02%
Bank SinoPac 2 Interest expense 12,212 (Note 4) 0.07%SinoPac Leasing
Corporation andsubsidiaries
2 Interest expense 3,660 (Note 4) 0.02%
Bank SinoPac 2 Operating costs andexpenses
2,484 (Note 4) 0.01%
4 SinoPac LifeInsurance Agent
Bank SinoPac 2 Cash and cashequivalents
120,482 (Note 4) 0.01%
Bank SinoPac 2 Operating and
administrativeexpenses
30,499 (Note 4) 0.18%
5 SinoPac PropertyInsurance Agent
Bank SinoPac 2 Cash and cashequivalents
13,256 (Note 4) 0.00%
Note 1: Transactions between parent company and subsidiaries should be distinguished as follows:a. Parent company: 0.
b. Subsidiaries are numbered in sequence from 1.
Note 2: Types of transactions with related parties were classified as follows:1. Parent company to subsidiaries.2. Subsidiaries to parent company.3. Subsidiaries to subsidiaries.
Note 3: In the computation of percentage of consolidated revenue/assets, if the amount is the ending balance of assets or liabilities,
the accounts percentage will be calculated by dividing the consolidated assets or liabilities; if the amount is the amount ofincome or expense, the accounts percentage will be cumulated by dividing the consolidated revenues in the same period.
Note 4: For the transactions between the Company and related parties, the terms are similar to those transacted with unrelated parties.
www.banksinopac.com
155
156
Domestic Major Economic Indicators
2006 2005
353,996
15,573
4.62%
224,017
202,698
21,319
0.60%
5.64%
6.22%
5.30%
5.72%
2.750%
3.125%
1.661%
6,842.04
7,823.72
96,372
266,148
32.531
32.596
6,086
4.99%
3.91%
1.34%
22,730,707
346,389
15,291
4.03%
198,432
182,615
15,817
2.30%
0.61%
6.22%
7.10%
7.65%
2.250%
2.625%
1.312%
6,092.27
6,548.34
76,190
253,290
32.167
32.850
20,056
4.56%
4.13%
-0.22%
22,652,541
2004
322,179
14,271
6.07%
182,370
168,757
13,613
1.62%
7.03%
7.45%
18.98%
21.10%
1.750%
2.125%
1.061%
6,033.78
6,139.69
95,501
241,738
33.422
31.917
26,595
9.82%
4.44%
30.96%
22,575,034
2003
299,785
13,327
3.43%
150,600
128,010
22,590
-0.28%
2.48%
3.77%
11.82%
11.28%
1.375%
1.750%
1.097%
5,161.90
5,890.69
81,660
206,632
34.418
33.978
37,092
7.13%
4.99%
-0.26%
22,493,921
2002
294,803
13,163
4.25%
135,317
113,245
22,072
-0.20%
0.05%
3.55%
17.01%
8.59%
1.625%
2.000%
2.046%
5,225.61
4,452.45
88,201
161,656
34.575
34.753
33,664
7.92%
5.17%
4.07%
22,396,420
In US$ millions
National income
GDP
GDP per capital (in US$)
Economic growth rate (GDP)
Foreign trade
Export
Import
Trade surplus
Price indexes
Commercial price index
Wholesale price index
Money supply
Annual growth in M2
Annual growth in M1b
Annual growth in M1a
Key interest rates (end of period)
Rates of central bank
Discounted rate
Rate on accommodations with collateral
Interbank call loan market
Weighted average of overnight
Stock market
Weighted Stock Index (TAIEX) - Average
- Year-end
Daily average trading value*
Foreign exchange
Foreign exchange reserve
Exchange rate (NT$/US$) - Average
- Year-end
Balance of payment
Others
Industrial production index
Unemployment rate
Growth rate of investment in private sector
Population (mid-year)
* (In NT$ millions)
Far East National Bank
Address : 350 S. Grand Avenue, 41st Floor, Los Angeles, CA 90071, U.S.A.
Tel : (1)(213) 687-1200
SinoPac Capital Limited
Address : 23rd Floor, Two International Finance Centre, 8 Finance Street, Central, Hong Kong
Tel : (852) 2801-2828
SinoPac Leasing Corp.
Address : 2F, No. 66, Lane 9, Songshan Road, Taipei 105, Taiwan (R.O.C.)
Tel : (886)(2) 8161-2288
SinoPac Life Insurance Agent Co., Ltd.
Address : 12F, No. 36, Nanking East Road, Sec. 3, Taipei 104, Taiwan (R.O.C.)
Tel : (886)(2) 2506-3333
SinoPac Property Insurance Agent Co., Ltd.
Address : 6F, No. 36, Nanking East Road, Sec. 3, Taipei 104, Taiwan (R.O.C.)
Tel : (886)(2) 2506-3333
SinoPac Financial Consulting Co., Ltd.
Address : 9F, No. 306, Bade Road, Sec. 2, Taipei 104, Taiwan (R.O.C.)
Tel : (886)(2) 8161-8716
Major Subsidiaries
Bank SinoPac